I encoded the same 10 sec clip 10 times at the highest possible settings that will work on a Touch, differing only in bitrate: 100kb/sec, 200kb/sec, ... 1000kb/sec.
Judge for yourself if you're looking for the "optimal" setting:
100 kb/sec (151kb)
200 kb/sec
300 kb/sec
400 kb/sec
500 kb/sec
600 kb/sec
700 kb/sec
800 kb/sec
900 kb/sec
1000 kb/sec (1.5mb)
In my opinion 200kb/sec is passable if you NEED it to be (e.g. you want to fit as much as humanly possible). 400kb/sec is very good quality.
Judge for yourself if you're looking for the "optimal" setting:
100 kb/sec (151kb)
200 kb/sec
300 kb/sec
400 kb/sec
500 kb/sec
600 kb/sec
700 kb/sec
800 kb/sec
900 kb/sec
1000 kb/sec (1.5mb)
In my opinion 200kb/sec is passable if you NEED it to be (e.g. you want to fit as much as humanly possible). 400kb/sec is very good quality.