Works really well with my 3G. If you set the folder it downloads your music into to the iTunes music folder (the one with all your music organised by artist in folders) then iTunes will put them into the proper folders rather than having two copies of the music.
To put it clearly, if you set the desktop to be your download folder it will copy the music to there and then iTunes will copy it into it's own folder system leaving you with 2 copies of the music. If you set the folder to Music:iTunes:iTunes Music then iTunes doesn't have to duplicate your music.
Senuti's great, I use it all the time and will do when I eventually get an external drive and a new iPod to get all my music backed up.