Nobody has pointed this out, so I'll do it. Regardless of what size Touch you get, you are guaranteed to have enough content on it at any given point to last at least as long as the battery charge. At this point, you can sync it to your computer, and swap out content for other things in your library, such as video, music, podcast updates, etc.
If you travel for long periods of time, and don't have/take a laptop, or have your library stored on desktop, then I could see opting to spend the extra $100 or $200 to get the higher capacity models. But frankly, unless this is the case, you can easily save money and get the smaller capacity model.
I don't see a need to store your entire library on your portable device, but this is just my opinion, and clearly others feel differently about this. 🙂 Good luck on whatever you decide.