I updated my iPod touch to 2.0 this morning. The process (which cost $9.95 + applicable taxes) was relatively smooth though it took a long time because of the steps to restore the touch to factory conditions before flashing it to 2.0. This was all automated, however. So, the process was not painful except for watching all this happen. The update file was a 222.6MB download.
You can see from the screencap above that I’ve already added a few of the free apps from the iTunes App Store. BTW, the screen capture procedure (press and hold Home button, then press the Power/Sleep button procedure courtesy of Gizmodo) works on the iPod touch as well as the iPhone 3G.
All my media files (podcasts, etc.) were wiped out during the upgrade process. But, various settings like my WiFi and mail setting were preserved. So, I was back in the wireless LAN as soon the upgrade finished. Moving media back to the iPod touch took a while. So, make sure you have 30 to 60 free for the process of buying/performing the upgrade.