i'd been using a 512 mb dell flash drive/mp3 player for years until i got a used 1st gen ipod touch 16 gb. it doesn't have shit for storage but since im used to less than a gig i make it work. i've also found that i don't even really need to have my ipod full to have all the music i really listen to.
the online thing is cool when you've got a connection. apps are fun, i use ishoot on the regular [my favorite] and there are also apps for shit like youtube, facebook, myspace, this that, bag of chips
never had a zune, seans was pretty sweet when i saw it, but i like the touch.