Some quick input:
This "3rd" generation iPod is 3rd generation insofar as it's the exact same hardware (more or less) that was previously sold as a 2nd-gen iPod touch, prior to the release of the 3rd-gen iPod touches that are capable of multitasking and doing all of the fancy new iOS4 features.
The hardware of this "3rd" gen iPod touch is otherwise the same, so it can't do any more than any other 2nd gen iPod touch with iOS4 can do.
It's currently only the *larger* capacity 3rd gen iPod touches that have the newer hardware and support multitasking and the custom wallpapers.
Next, my experience with refurbs (Apple products) has been positive. I got a refurbed 30GB 5.5-gen iPod (classic) via woot! and had no problems with it (though the serial number was apparently supposed to be matched up to a black-colored one, while my iPod was white). I've also bought a refurbed MacBook directly from Apple, back in 2006, and it's still going strong. I've had many more problems with Invicta watches, which weren't even refurbed (one through woot! and one through another deal site).
Finally, THERE IS NO SUCH THING AS AN "ITOUCH"! It's iPod touch--nowhere in any official materials is the iPod touch ever referred to in that way. That misnomer came about simply as a mistaken way of referring to the device, using the same convention as the "iPhone." However, it's not correct! Such a device does not exist!