I think an ipod touch sounds perfect for your DH. We have an ipod touch and an ipad and personally we really prefer the ipad. Pros include built in speakers (so I can use it as a kitchen radio even if I'm moving around loads), the option of connecting to 3g if wireless isn't available, the larger screen for playing games watching shows and more easily navigating the internet, and the excellent battery life. With the ipod touch we kind of miss those things, and if it were an iphone we'd probably use it more because we always have our phones with us anyway, whereas carrying something that's like an iphone but with fewer features doesn't appeal as much.
However, like you said, if he's into having something small and portable, able to play games and watch shoes, low cost, and still able to access the internet if he has a wireless connection, the ipod touch sounds like it'll be great. But is there any reason you're not just getting him an iphone instead?