If you can afford it, I would just go with the iPad. I got mine a couple months ago and my son loves loves loves it. He's getting one for either his birthday or Christmas. I know it seems like a lot of money but I wish they would have had these a couple of years ago. I wouldn't have had to have a seperate traveling DVD player, Nintendo DS and all of the games that we have purchased, which has totaled way more than an ipad. Plus I love the fact that apps are only a couple of dollars if he wants a new game to play with, instead of $30-$40 with a DS.
We looked into an ipod touch, but the screen is small which can hurt their developing eyes, and it's easier for him to touch on the ipad. On the ipod touch, the keyboard screen is so small, when he was typing stuff, he'd get frustrated about thinking he was pushing one letter and another would show on the screen.