I'm always one who thinks you should buy the latest version of whatever it is that's out there. Sure it might cost a little more at first, but it usually turns out to be the most cost effective in the long run because the technology remains viable for longer. The newer iPods are all flash memory - solid state. The Classics use hard drives. Moving parts - points of failure. So I'd say to get the iPod Touch if you're going to go with an iPod. If you're going to load it up with lots of music, movies, podcasts, etc., you might want to get the 16 GB, but an 8GB might suffice. 8GB is a lot of room, unless you're ripping your CD's at really high bitrates and loading on lots of full length feature films.
I'd like to offer an alternative to the iPod. Consider some of the players by Sansa or Creative that support Rhapsody To Go. (Rhapsody does not currently support iPod players.) If you're not familiar with Rhapsody, it's an online music service that allows you to download unlimited amounts of music to your digital music player. For about $15/month, you have access to millions of songs across just about every music genre you can imagine. I can't tell you the last time I actually bought a physical CD.
I have a 60GB iPod Video, but it's been collecting dust ever since I signed up with Rhapsody about 4 years ago. Now I use my little Sansa 8GB player and am always refreshing it with new music. Plus I have a few gig of my own CD's ripped down to it.
No doubt about it, the iPod Touch's are slick. If Rhapsody supported iPods, I'd already have one. But, alas, I'll stick with my Sansa and Creative players because with Rhapsody To Go, I can tailor my playlists to my particular mood for just pennies per track.