We're using it as an iTouch. It works reasonably well despite some odd bugs. The trick is:
- Use Data Reset to wipe completely.
- Sync with iTunes Library.
- Put in Airplane mode.
- Re-enable WiFi. The 2.2 software has this capability since some airplanes have WiFi service.
I turned off location services and push though the first should be irrelevant in airplane mode.
Now it's a somewhat slow and memory poor iTouch -- but free. I sync it with our iTunes Library so it inherits the games and media from my iPhone. (You can sync DRMd music to an unlimited number of iPod/iPhone devices from one Library, but I think you can only sync apps to five iPhone/iTouch devices.)