I have a couple of things to say, a little venting, but also offering maybe a bit of hope for some.
I want this to be a video ipod/internet surfing PDA so first off, I am pretty furious at Apple for not including Mail.app or some sort of word processor/notes program on the iPod touch. While yes, I can access webmail, and yes I am almost positive the brilliant hackers out there will port it almost immediately, it is a little annoying. And there is still a possibility it will never happen. Not likely, but a possibility.
For one, I am glad you can finally export video. While certainly it is not anywhere close to the "Portable DVD player with all my movies in the palm of my hand that I can Plug into any TV- device" that I was hoping, I like that at least it can be the "Portable DVD player holding a few of my movies that I can plug into any tv - device".
The 16GB was definitely disappointing to me. However, there MAY be a few reasons they went Flash that really ends up benefiting the user experience. As others have mentioned- no lag from the HDD. I think in a touch interface (with no tactile feedback) this is probably very important to the fluidity of the experience. Imagine touching it and getting no response because the the harddrive is spinning up, so you touch again.. and again.. each time sending new directions. With flash, it is almost instant, and thats a good thing.
Furthermore, the spinning hardrive MAY really effect the accelerometer in these things, hurting the ability for the iPod to detect when its supposed to switch screens (from vert to horiz and vice-versa). Furthermore, the iPod Touch and iPhone probably experiences a lot more rotating by the user than a traditional iPod. The user will be flipping it on its side to view movies, turning it back to scroll through music, flipping again to view a webpage... Thats a lot of movement for a spinning Hardrive to take, and may have performed poorly in stress tests. I dont know if this was the case at all, but when I think of these things, maybe I dont mind 16GB of flash so badly.
Finally, and I think here is the kicker for me, (assuming I can put the effin mail.app on it!), there are some really sweet software options already available for the iPhone that I'm sure will be iPod Touch ready in no time.
Check this out. This allows you to stream any of your media in your iTunes library to any internet capable device. Essentially, as long as you have access to wi-fi, the amount of HD space hardly matters because your entire library is available to you. They already have an iPhone plugin which apparently works wonders!
Come on apple, allow us to throw mail and some note taking program, and maybe despite your lack of GBs I might jump on.