Look, I'm always the one rolling my eyes at the people who complain about how Apple didn't come out with the product they were hoping for, but this case is a little different. For years there was a steady progression towards more storage/dollar. We started at 5 gigs, and made it all the way up to a whopping 80 TIMES THAT at 160GB. Now an update comes along, and there is an obvious sign of EOL for that product, and the next in line in terms of capacity offers less than half for almost double the price. The cost comes down to a bunch of new features and flash memory instead of a hard drive, which is all cool, but none of it really helps the core purpose of the original product, which was listening to music.
And I'm sorry, but there's a HUGE difference between being able to have all your music with you and having to pick and choose. I went for years without an iPod, till 2007, telling myself I had no need to carry that much music around and that one CD at a time was fine for me. Now I've had one for a few years, and now, wherever I am, if I decide I want to listen to music, I know that I can make my decision on the spot as to what I want to listen to. It's never a planning ahead kind of thing, I can browse through all my music and say "hey i haven't listened to that in a while".
I'm only 26 and I already have 31GB of music, pretty much all at 128kbps, and so I've finally reached the limit of my 30GB iPod. I've had to go through my library and decide which few albums I never listen to, but I've already been in a few situations where I want to show somebody some music, and then I realize it's left behind on my computer, because I had a moment where I thought I wouldn't want to listen to it.
I see a pretty clear analogy here... It's like Apple ditched the Mac Pro in favour of the more popular iMac, and in this thread we have a bunch of people poking fun at the silly Mac Pro users for lamenting the loss, simply because these iMac users can make do without a Mac Pro.
Its not just a situation with an update that didn't satisfy some specific wishes for a given product, its essentially an EOL for an entire type of device, I think it warrants discussion! Personally, I was hoping for a cheap, click wheel Classic with 64GB flash, or even just an updated Classic with an HDD at a lower price point and with an updated interface. I don't need or want to pay for mobile internet, touch screen, apps, and pointless low-res cameras on my music player.