Although the 4th gen has been out for a year I only recently acquired one last Saturday for well below retail through BYU's lost and found sale. I quickly updated the OS to iOS5 which was released a few days before. The improvement was quite remarkable to me, but that may be because I was coming from a iPod touch 1st gen running iOS3, so I got all the hardware improvements at one time. The external speaker, the side volume control, and the microphone are all nice, but the best hardware improvement from the original touch is the front and rear facing cameras. The say the best camera is the one you have with you and the 4th gens camera is far superior to the one on my cell phone, plus it shoots video as exhibited below. Other hardware changes are the more responsive touch screen and what seems to me to be a much faster processor. All of these make for a better experience (although I loved my 1st gen and it was very use full).
The software changes are also great. Because I could never update to iOS4 on the 1st gen some of the software changes like multi-tasking have been around for over a year but I didn't have them. I really like the new notification center which is unobtrusively lets you know when you receive messages or updates. This way if I'm making flash cards and Cousin Jamie solves my word in hanging with friends I am not interrupted by a large blue box but just a simple notification in my status bar which will I can then drag down to access. Another old feature that is new to me is pretty simple but really nice, that is the ability to make folders on my home screen to organize my apps. I have a lot of apps and previously I've had to scroll through page after page of them to find what I want. In iOS5 there are several small feature updates that just make things a lot nicer. The calendar app in particular has been improved so that there is a landscape mode to view multiple days at once, and you can now just click on a time to start and entry, this all makes it much more convenient. One of my favorite updates to iOS5, which I've been waiting for since I first got an iPod, is the ability to create and manage playlists and photo albums on the iPod instead of on a computer, it is just much more convenient. Over all its been a great improvement to have the new iPod with the new OS.