well the chip has both FM radio and FM transmitter built in to it, my personal preference would be the FM radio if apple only gave one. and I guess it may be included now the nano has one.
and a wifi dependant internet radio app is not camparable to FM in any way for one reason - what if you are not in a wifi area?
Apps like iheartradio and Wunder Radio work over a 3G connection. Granted, they won't have all of your local stations, but they have a great selection, especially Wunder Radio.