Get a 64GB iPod touch. The iPod touch has finally reached capacities that almost make it a replacement to the iPod classic. You can now put on more music, video, etc. than ever. In addition, you get the App Store, with 80,000+ (and counting) apps and games. And these games aren't normal "phone" games. They're actually comparable to games you'd find on the PSP. There's Need For Speed: Underground, Tiger Woods PGA Tour, hell, Rock Band is even coming in a week or so once Apple approves it.
Get the iPod.