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Connect it to iTunes on a computer before it will work?

No - if the iPod Touch has OS5 on it, you can set it up and use it without connecting it to iTunes.
 
You need internet access if you want to use the iTunes store. IIRC iTunes app on the computer doesn't really require internet to work. You can still use iTunes to rip CDs and load them onto the iPod Touch.
 
I thought activation required internet access? That was the case with the iPhone.
 
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