the latest operating system takes 1GB + you'll have about 6.8 GB to use. An mp3 is about 4mb, 500 songs = 2000 MB

Games are small, but I only keep good games on my ipod, and those are huge, about 100+ mb. it should be enough. Large size is an overall good investment because sooner or later, you want to put more stuff. More videos, music, applications.

If you're going to get another one, you'd rather wait for the new 5th generation ipod touch. (though it will be expensive at release)