The iPod Touch is so different in both looks and functionality from previous iPods that it's no longer just a media player.
When you consider that in addition to being an excellent music and video player, you also get push email, an incredibly capable internet browser, calender, notes, google maps & you can play games. At the very least its the trendiest PDA ever, however I think it's best described as a really cool ultra-portable computer.
Now with the introduction of the App Store it truly releases its immense potential, with third parties developing new niche products almost daily. The sky's the limit.
My personal favorites:
eBay - easy access to your ebay account
Google Earth - needs no introduction
NetNewsWire - news feed reader
Things - task planner
Bloomberg - stocks, currencies, news headlines
BtBx - synthesizer/ sequencer
Wikiamo - wiki reader formats output for the mobile screen size
Most (but not all) of these are free at time of writing.