I think it's the Wi-Fi
I don't have the problem with my new 2G Touch, but on my first-gen it always flickered if it was on a lower brightness setting when the Wi-Fi was on. It stopped when I turned it off (along with the annoying buzzing from my speaker/iPod dock 😀). I repeated the test multiple times until I could be fairly certain there was a connection.
I developed two theories based upon said tests:
1. The Wi-Fi waves somehow interfere with the screen output (like they interfered with my speaker).
2. The energy taken from the battery by the Wi-Fi chip makes it hard for it to maintain a steady brightness level (like when you turn on the vacuum and the lights flicker from the power fluctuation).
Hope this helps! BTW- I think #2 is better, for the record.