You don't need me to tell you that the iPod touch is pretty awesome. A lot of people are pretty darned enthused - 20 million buyers can't be wrong, surely?
Certainly, the iPod ecosystem might be frustrating to those who want to be completely in control of their devices, but those of us happy to trade away a little freedom are rewarded with an incredibly slick user experience. The vocal minority might disagree, but iTunes isn't that bad and it's by having a closed system that Apple was able to build its dominant lead. Like it or not, the record labels are still pretty keen on controlling how you use digitally purchased music and by facilitating that control Apple has been able to dominate the download market.
The key to the success of the iPod touch (and by extension the iPhone) is that Apple created a fantastic hardware platform on which apps can run. Of course the media playback aspect of that platform works well for Apple, as selling media (be that music, films or TV programmes) is a major part of its business, but it's the (semi-)openness to third party developers that really makes it shine and its in that direction with which Apple has focussed the improvements to this iPod touch revision.
The big change in this generation affects two thirds of the iPod touch line-up. The entry level, £149, 8GB touch is - updated firmware aside - entirely unchanged. But while the £229, 32GB and £299, 64GB models may not look any different, inside they're now running faster hardware, as featured by the iPhone 3GS.
As we noticed when using its call-making counterpart the faster processor and graphics chip make using the upgraded touch much snappier. I'm in agreement with Riyad that for most applications it's probably the faster GPU that's to credit, thanks to its faster rendering of the iPod touch's graphics-heavy interface. Although I'm sure the processor helps loading the inordinate amount of Notes I've taken, even if it can't help me discern what I was thinking when I wrote most of them in pseudo-shorthand gibberish.
The upshot is that the 3rd gen iPod touch causes me a lot less frustration than my iPhone 3G, which is starting to feel decidedly slow in accomplishing even the simplest of tasks. Whether it's browsing in Safari, checking out videos on YouTube or launching apps, everything is that bit quicker. It might only be a second or so each time, but day-in, day-out it's noticeable.
If you are going to buy an iPod touch, ignore the 8GB model. It's too low a capacity for this class of device - good luck fitting a decent amount of music, videos and apps into the 7GB of free space you'll have - and for £80 more you'll get four times the capacity and a faster device. It's a no brainer to my mind.