Here is a list of some of my favorite applications for my second generation iPod Touch:

TapDefense - Great Game
iBeer - $0.99
Tangram Pro
Trace - Fun, good stragitie
TiltSnake - Classic
MazeFinger - Cool game
CannonGame - Good stragietye
Tap Tap - Must have
BMLite - Cool racing game
Black Jack - Fun
BiiBallLite - difficult
FourFree - Fun
Checkers - Fun
iBall3D - Fun
MySpace - Cool
Facebook - Cool

All except iBeer are free. I would like to mention that TapDefense has been at the top of the Free Apps list on iTunes for almost 2 weeks now.