I’ve had an iPod Touch for a year. An 8 gig second generation. It is very much an iPhone without the phone (and camera). It looks similar just smaller/thinner, plays music, plays video, and lets you use applications and wifi.
I have 4588 songs in my iTunes library and I put “best of” playlists on my Touch. I encode my own video to watch on it by ripping my DVDs using HandBrake. I watch video on it at the gym mostly. I play games like Bejeweled, Solitaire, Texas Hold Em, Skee Ball when I am bored/killing time. I use it to quickly check Facebook, Twitter, my email, and other sites when I have a wifi network available, like when I’m at home but my laptop’s off or closed.
Having a Touch requires the ability to understand and utilize iTunes. You have to get your music into iTunes (this isn’t 100% true but it’s probably the most simple) by ripping CDs you own or purchasing music online with a credit or applicable gift card. Some games are free but many of the “cool” ones are not and cost anywhere from $1 to $7 or so, most “cool” games appear to cost $2-6 bucks a pop. There are all kinds of other apps like for Facebook, Twitter, MySpace, weather, sports scores, news, you name it. Many apps require internet access for full functionality/updating. Most video you can get from iTunes is NOT free, and if you want to put the DVDs you own on your iPod you need to rip and re-encode them using software like HandBrake to get them in the right file format to work on the Touch.
I don’t think a five year old should be messing with a Touch. It’s all touchscreen and small and I am not sure if five year olds have the finger dexterity to be able to use a Touch but I could be totally wrong. And the screen is glass; mine has appeared to be pretty hardy but I wouldn’t let a little kid touch it and possibly drop and break it.
It’s up to you whether or not your nine year old is able to have one. Can they use iTunes, or will you have to load all their music and make playlists and sync them? Will you give them credit card access for buying stuff? Or buy them giftcards? There are free games but not many that are awesome or playable over time; they get boring or you run out of levels/stuff to do because it’s a ripped away version. Do they want to use it for video? More stuff you have to pay for or you have to encode stuff for them which annoys me and I do it for myself.
I really think your nine year old wants one cause of the cool commercials showing Wii-like games that utilize the accelerometer in the Touch like driving games. But a Touch costs as much as a Wii does. I treat mine like my even more portable MacBook - I check email and read the Word and PowerPoint doc attachments, look up stuff on the internet for school while in class, use LinkedIn and Facebook, browse the SDMB, etc. The games and stuff are more like extra fun that kills time. But the games are throwaway kinds - short play stuff. Touches are flashy and cool but it’s a waste of money if you’re not really gonna use it for what it does. Get a Nano or something if you really just want music and a neat looking device to show off.