I second ilovejedd's suggestion regarding buying refurbished from Apple's store.
I bought my husband a refurbished first gen Touch direct from Apple for his birthday. It was $80 less than the 2nd gen and looks like new. Apple replaces the casing and battery on all refurbished touches. They come with a full one year warranty. Only difference between the first and second generation touches are that the first gen doesn't have dedicated volume buttons on the side of the unit nor does it have a built in speaker. The battery life also isn't quite as good as the first gen.
dordale