Depends on what you're looking for I have a 2nd Gen 8GB iPod touch I use for snack size gaming. Like when I'm sitting around school before a class or something. It's really good for that.
It has some decent ports/remakes of retro games like Final Fantasy 1&2, Flashback, Vay, Doom, and Wolfenstien 3D. All of which are modified to make them easier to play in short bursts with features like save anywhere if they didn't have it already.
Also, they're starting to get some good hardcore original games more recently N.O.V.A. is very Halo like, Raven Sword is a good Morrowind style western RPG, Chaos Rings is a new JRPG from Squenix that is pretty good from what I played so far.
Not though that 95% of the games for the platform are more casual fair. Think of it as your own little portable NewGrounds as apposed to a DS or PSPS like device
If you do get one for gaming though, make sure you get one of the higher end 3rd Gen ones with the new fancier graphics chips, it makes a huge difference in graphics capabilities and games are starting to come out that will only run on those. Also I hear rumors of new hardware to be announced in June, so you'll definitely want to wait for that. Even if the new hardware isn't anything special it will push down the price of the 3rf Gen hardware.
And on that note, if you mostly want it for gaming, and don't have a PSP or DS yet, I'd recommended one of those over a Touch. Or waiting for the 3DS near the end of the year. The games of much higher production value and just plain generally have more depth. Also touch screen is no replacement for buttons in most game types.
If you just want it for music and don't care about the gaming, web, and video aspects of it than I'd go with another device, something with buttons and more space at a similar size or smaller.
If you're looking for a good portable video player, it's nice, just make sure you get a large one so you can fit a decent amount. I'd consider a Zune HD also though, they have some better features at the expense of a decent app selection. May also wat to consider something bigger depending on what your portability needs are
For a web device it's decent, if you just plan on using it for reading text sites and looking at pictures. No real substitute for a computer, but for just looking something up real quick or flicking through a Google Reader feed, it's good for that. But, the lack of a always on internet connection cripples a lot of the possibilities with this, making a smart phone a better choice. Also, one of the upcoming slate style PCs running Android or Win7 (or eventually WebOS) will be a better option as larger screens, multitasking, and flash support should be pretty standard on them.
For a hybrid device though the only real competitor to the Touch right now is the PSP. PSP would win for hardcore games, but loses in pretty much every other aspect. Video is acceptable, but I think the Touch is better, I haven't done any direct comparisons though. The PSP's web browser is just awful, and as a audio device it's very spartan in functionality. Meanwhile all these things are excellent on the iPod Touch.
But yeah, it depends completely on what you're looking for, if you want some more details on what kind of games are available for the touch let me know what you like and I'll let you know if there's anything relevant to your interests. Also slidetoplay.com and toucharcade.com are both excellent iPhone gaming resources.