The AppleTV synchronizes with a computer, not with an iPod. You must have a computer with iTunes installed to properly use an AppleTV. If streaming the content this also means keeping the computer on with iTunes open when using the AppleTV.
It is possible to have content synced to the AppleTV and stored there. If his iTunes library is small enough to fit on the AppleTV this would allow him to access that content from the AppleTV without needing to keep his computer on, but you would never want to use the AppleTV as a stand alone device to purchase and store content on by itself. It has no backup capability other than to sync with a computer.
It is still a great device though, and aside from iTunes content it also provides access to YouTube videos, internet radio, and Flickr. I use mine every single day for listening to Podcasts, watching TV shows, and renting movies. Personally, I got rid of my cable service and just use the AppleTV. It has far more content available than something like Comcast's On Demand service.
As for an iPod Touch, it has 3 things the AppleTV does not have: Safari (internet), Apps, and portability. You can also get a dock to connect the iPod Touch to the TV and watch TV/Movies on the TV played from the Touch, but the docks are a little expensive $100-$200.
Does he have something to play Blu-ray movies, such as a PS3 or stand-alone Blu-ray player? If not, a slim PS3 is only $299, and stand-alone players are available for less than that. The PS3 also has access to an online store for movies and tv shows, not to mention a web browser for surfing the internet. Oh, and it can play games too.
Between the iPod touch and the AppleTV though, I would go with the Touch. That way if he's watching something on the TV and ignoring you, you can use his Touch to surf the Internet and play games, or vice-versa if you're watching some horrible drama on his TV he can use it to surf and play games.
