I also bought a 3 month old Verizon 32GB iPhone 4 w/bad ESN (non-payment of contract) on eBay from a reputable seller for $240. It makes a terrific iPod... and because the cell radio and GPS are turned off, battery life is insane.
Is it an option for you to keep the GPS running? It seems the GPS would be quite useful. For me, that would be one of the reasons to justify buying a used iPhone 4 to use as an iPod Touch.
James