Lifehacker recently wrote Forget the iPhone- the iPod touch is good enough:

Back in June 2007, I couldn’t convince my wife that checking my email in grocery lines was worth $1,320—the cost of an original iPhone and one year of the cheapest plan. These days, the trend-setting phone costs even more money over its life, and it’s more than a little restrictive and even a bit buggy. So I’m amazed at how little love the iPod touch gets. It’s a slimmer iPhone with almost all its features, it requires no contract, and when you can’t get a Wi-Fi signal, your plain, humble cellphone can step up to take its place. Here’s why anyone considering the iPhone should opt for its oft-ignored sibling—the iPod touch—instead. Photo by sarchi.

While you won’t get every single one of the iPhone’s capabilities when you opt for an iPod touch, you’ll save a ton of money. Buying an iPod touch costs you $300 for unlimited use, not a guaranteed commitment of more than $1,600 over two years that the iPhone involves (more, if you have to pay a penalty to get out of your current cellphone contract).

I agree. A refurbished or lightly used 16GB iPod Touch can be found on eBay these days for around $260, much cheaper than the $1320 the iPhone will cost you you over two years. Besides, I’m not ready to replace my Blackberry as a phone/email device just yet– you’ll have a hard time getting me to accept a touch screen for typing long emails.

That price lets you enjoy all of the software goodness that the iPhone and Apple’s game changing App Store has to offer.

What about the lack of a built-in speaker? For $8.24 shipped, I got a very compact add-on speaker for the iPod that plugs into the dock connector. (The speaker was shipped free from Hong Kong and remarkably made it to Seattle in only five days; I haven’t found anywhere locally as cheap.)

Microphone? Lifehacker has a piece on how to turn you ipod touch into an iPhone that describes a microphone add-on, around $50, and explains how to install VOIP software for free or low cost phone cals. This option is a bit on the bleeding edge for me, but I expect in not too long you’ll see combo speaker/microphone add-ons for affordable prices.