Honestly,

I think it is merely too expensive for what it is. That is my first and last reason why I dislike it. $500 for a large iPod touch is a smite ridiculous. Waitwait had a joke that it is basically iPod for seniors, with extra large buttons and bigger letters.

For what it is, it is seriously priced like a netbook. Which is strange, since it is really hard to get good programs for it, or write on it, or browse the internet effectively. I think that eventually we shall kick our habit of using proxies for interacting with information (keyboard and mouse), and use touchscreens exclusively, but I don't see the iPad being the shift. Then again, none expected the iPod to take off, and look at it now.

However, your argument for the optical disk, I think that is kind of pointless. I see the world moving towards an era without physical copies of material. You can still own a right to a multimedia item, but it doesn't have to be stored on your local computer. Cloud computing is becoming so cheap that soon enough we shall have no reason to even have hard-drives, which would be wonderful as the hard drive is usually the slowest and warmest piece of any computer. Maybe just a tiny bit of flash memory to store the basic OS files.

So, I don't think you need a whole other system to work it, it is merely badly designed to be standalone. It assumes you have a home computer. But it is the first generation. When the first iPod came out, touchscreens were cumbersome, slow and stupid things none really used. Look at it now. So, it is too early to render such judgment.

As far as your argument that it should fit in a pocket, well... that depends on the device. Is it a toy you like enough to carry around with you even if cumbersome, or is it just a novelty to which the size is a determining issue. I guess what I am trying to say is that if the size is such a factor, you are probably not that attracted to the device.

In closing, it is an expensive, fancy toy with shininess, just like everything new apple kicks out. Time will tell if it matures into a useful product or fades as just another device that wasn't exactly what the market wanted.