I currently own a 120 GB silver classic. Use it mostly for music and that's it...screen is too small for me to use it for pics and video. Just bought a 64 GB Touch for all the goodness of an iPhone minus calls. Can't wait to get it from Amazon, paid $357.00 for it. Was looking at the 32GB but figured since my classic has lots on it I wanted to make sure I had room for movies and apps! Once 64GB iPhone is out I'll upgrade and give the Touch to my son so he can play his games on it.
I have both, too and have been through this particular debate. For a very long time, I was a huge fan of the classic (had a 30GB which lasted over three years) and bought an 80GB in Sept 2008 which I still use daily, it is an excellent sturdy device, which has never failed me. The reasons I loved (and still do) the classic were all of the ones posted here - great capacity (and I am passionate about my music and wanted all of my music on one device; besides, I travel a lot and am away for months at a time), and an excellent battery life.
Last summer, I decided to add a 120GB to my 80GB (I am in a place where if an iPod dies, one goes without until music until the next trip to western Europe), and most unfortunately, it had died by September.
Unfortunately, the point about the sometimes faulty HD of the classic is all too true; writing from personal experience, I can state that an earlier 30GB had also expired in 2006. Both cased were HD failure. Granted, in both cases, upon production of a sales receipt, the response was an immediate offer of a refund/repair/replacement which I availed of in 2006 when my 30GB clasic was replaced with the same model which then lasted - and was used very often - over three years. (This excellent customer service was one of the reasons I switched to an Apple MBP).
However, this HD failure is an unfortunately undeniable feature on a small number of classics; yes, Apple do respond immediately, (provided it is within warranty) but it is still a nuisance. Last Sepetmber, when I returned home after my classic had expired, I brought the moribund object to the place where I had bought it, produced the sales receipt, and was offered an immediate refund/replacement.
Actually, at the time, I just wanted another classic, as I believed that all of the hype and spin surroundingt he Touch was just that, namely hype and spin. The problem was they didn't have the classic in stock, and it would not have arrived for another week, by which time I was due to return to the Caucasus. So, I asked about the Touch, and paid the difference in price for the 64GB (as I wished to have my entire music collection on it).
Cue complete conversion: I love the Touch, the battery life (which had been a fear of mine) is excellent (as long as one is simply listening to music, rather than surfing, and the sound is extremely good), the capacity is extensive, and the Touch can do a great many other things as well. It is really incredibly good, and I am still exploring the many and varied capabilities of this fantastic device.
So, the answer to your query is, it depends on what you want; if you want simply music (which is what I wanted), the classic is the obvious choice, but the Touch can do that, and so much more besides. I have both now and use both on a daily basis; the classic goes to work with me, and the Touch stays where I live.
Cheers and good luck