Last August I found myself in the possession of a Zune after my iPod caused me great suffering. This post should alternatively be called "Don't buy a Zune." Any glee that I had about replacing my old iPod quickly melted away the first time I tried to buy songs online for the Zune. Is it just me or does Microsoft actually want to prevent you from buying songs online? I never did figure out how to do it through their unintelligible software. But of course, I did give up pretty easily. This article has a pretty decent shortlist of things wrong with the Zune and Microsoft's campaign (i.e. marketing hari kari).
My loving wife sensed my frustration (either that or got sick of looking at the ugly thing) and gave me a 16GB iPod Touch for our anniversary. Like with the original iPod and the iPhone, Apple continues to innovate and blow the socks off of the competition. Whatever issues were present in my older iPod that caused songs to cut off seems to have been fixed with the brand new software in the Touch. The screen is brilliant and the touch sensitive UI is so amazingly intuitive. The video playback quality is quite nice as well. There's no FM tuner, but that was never a feature that I found myself using on the Zune.
The downsides that I have encountered have been few, but important. First, the lack of memory due to using flash rather than a miniature hard disk. Even my old iPod had 30GB, whereas now I'm trying to make do with 16GB. Furthermore, the iPod no longer functions as a USB storage device. Third party utilities can be installed on a jailbroken iPod Touch, but it's much more difficult for the average user. Also, there's no firewire support for the Touch. That, combined with inefficiencies in iTunes (change the name of a video and you have to download the whole video) make for some long sync times. Oh, and in full Apple fashion, it's not cheap.
My opinion is that if you have the cash, go for it. Stay away from the Zune and grab an iPod Touch.