You need this upgrade? I have a 1G iPod touch, my screen is thoroughly shattered and cracked, and my headphone port has stopped working unless I hold the headphones in at a funny angle that I can never seem to get right. 😀 (That's right, I can't even listen to music on my iPod anymore!)
I'm tempted to get a refurb 16GB 2G for $199 (that's all the capacity I need). In fact, if I can find one cheaper, I could even go with a 1G since my case would fit it better and I don't think there's anything compelling in the 2G that would make me want it, not even the external volume controls. Same with 3G, although if they added a camera, I'd consider it.
Also in my consideration: a third-party accident-protection warranty. 😱