We aren't going to use CDs, she will be using some sort of MP3 player like the rest of the household. We don't want to use disks when everything is already available on the computer and we can have it all on an MP3 player at once.
Have no fear about her "plugged in" status. She gets daily use out of her crayons, coloring books, dolls, blocks, toy trains, story books, dress up clothes, play kitchen, Little People, and other assorted stuff. She does not require electronics to be entertained and spends the vast majority of her day playing.
As far as "what will you get her when she's older" if she's already got stuff now, she won't be getting the latest and greatest of whatever it is. It just happens that the Touch would be easier for her to use and about the same price as a nano, which was the other thing we were considering that would do what we wanted. We were looking for something that can work with iTunes (since our music library is already loaded into it) and have a way to see and select a specific song (or specific story) but it doesn't need to have a ton of storage space.
The availability of internet access on it doesn't bother me since access can be blocked.