If you can find one in stock anywhere, Argos are flogging off first gen Touches cheap. £148 for the 16 gig, £20 less for 8 gig. Bought one at the weekend.
As far as I can tell, there's not enough difference between 1st and 2nd gen to stop this being a bargain.
Unfortunately the thread about which apps are good seems to have disappeared. What do people recommend?