thanks man, I appreciate the honesty.
I know I am going to have to get a mic, but I guess I am unsure how it all going to work - do I still need an earpiece with the mic? Am I still running headphones? Do the mic get recognized right away? What is a good price to get the Mcnally mic for?
Some of the answers to your questions have already been hashed out in the threads that I linked you to over at ipodtouchfans, but to sum up: the mic gets recognized "right away" whenever an app that uses the microphone tries to use it (initializes it). In particular, the MacAlly microphone has a blue light inside the mic that shines through the grille, and it turns on whenever the mic is "active." So you should know pretty quickly whether it is working, even without trying to play back recordings of yourself...if it's working, that light will be shining.
You will need an earphone/headphones with the mic still, yes. The 1st gen Touch obviously has no speaker, and even if it did, like most systems with a speaker, unless they are properly engineered and have all the fancy features like noise-cancellation or auto-duplexing "speakerphone," you'd want to turn the speaker off and use headphones anyway unless you want to risk feedback and echoes and such.
There is also an odd quirk with the MacAlly in the iPod Touch where the mic won't work/turn on unless you actually have headphones plugged into the headphone jack on the Touch. I'm guessing this is because the MacAlly could technically be used with a 2nd or 3rd gen Touch, or even with an iPhone, all of which have speakers, and I bet the software is trying to prevent the situation I referred to earlier with feedback into the microphone from the speaker. So the firmware will actively prevent you from using the mic unless you have headphones plugged in.
Oh, and also: the headphone-jack-looking-thing on the bottom of the iVoice is NOT a place to plug in headphones or a speaker. It's a line input for, say, a different microphone, or another audio source that you want to record. Kind of a handy feature.
As far as a fair price goes, I want to say I paid $20? $25 maybe? for my used iVoice on eBay. Quite possible that they have come down in price since then. ...holy crap. I just checked. ~$40 was the lowest I could find currently. That's crazy. Too bad they are out of production, which is undoubtedly not helping to bring the resale value down in your favor. I'd be patient and keep looking...a cheaper used one is bound to show up sooner or later.
That says for touch 1st gen with firmware 2.2 and lower?!?!
Uhh...the seller is wrong and possibly confused. The iVoice will not work with the iPod Touch unless the firmware is at a MINIMUM at 2.2. It isn't recognized if you are using firmware any older than that.
Hope this helps,
-- Nathan