1. Use this to determine when to buy this stuff.
http://buyersguide.macrumors.com/ The iPod Touch 4 is your best bet, because it's going to be supported for a long time into the future, because it's new. That goes without saying, but it's important because if you buy the iPod 3, you can expect it to be un-supported, slow, and running an older OS in, say, a year or two.
2. iPods are perfectly reasonable solutions to needing an mp3 player. Not everyone uses their phone because not all phones are suited to play music well, and no phone is as good at playing music as an iPod (except for the iPhone), although that's just my opinion. It works seamlessly and it's easy for me.
3. It might be a bit out of your price range, but not by much, and it's 32 gb. which you'll need:
Link for teh lulz