One thing to be careful of when choosing a case is the light sensor. On the top back corner of the iPod touch is a black square thing in the metal which senses the amount of ambient light and brightens or dims the screen accordingly. If you cover that with an opaque material the sensor will assume it is completely dark all the time and keep the screen pretty dim. At night it doesn't matter, but when it is bright out it can be a pain.
As for me, I have a silicone skin deal that covers three sides but leaves the screen open. It works fine, but doesn't really protect the screen, and as mentioned above it screws with the screen dimmer. I think it was 10 or 15 bucks at radio shack. It feels nice in the hand, is real grippy so in the car the ipod doesn't slide around, and prevents scratches on the back and reduces them on the front.
I'm pretty sure the light sensor is actually on the face of the iPod Touch in the upper right/middle(Depending on 1stGen/2ndGen) of screen on the front. If you shine a bright enough light on the screen, you should see a little red dot that is the sensor. The black part on the back is where the wireless antenna is housed.
Light Sensor on iPod Touch 1stGen/2ndGen
Huh, good to know. I assumed it was the black part on the back since the light sensor doesn't work with my sleeve on it and when I take the sleeve off the top half it does work. I guess the little strip along the top that does cover the front happens to cover the sensor too. Thanks for the info. Either way it's bad if your sleeve covers it.