I recommend trying to find an iPhone 4 for the same/similar price as a comparably sized (GB) iPod Touch. I bought a pristine 32GB Verizon iPhone 4 with a bad ESN for $210. Except for the inability to use FaceTime (requires cell service), it functions even better than an iPod Touch.
I tried locating an AT&T iPhone 4 so that I could get FaceTime via a prepaid SIM, but the AT&T models are insanely expensive.
If you can't find an affordable iPhone 4, then by all means get the current iPod Touch 4G... it's a very fine device and even the substandard camera can be tweaked with optional software for higher res/quality images.