Well the iPod is pretty good for music and video already.
I think if you consider the X fi2, you should also consider the Cowons, the S9 and J3 are both great options with similar sizes. Great for audiophiles, good eq options and sound adjusting stuff, and all sorts of formats supported.
So it guess it depends just how much you want to focus on music, cuz the overall functionality of the ipod touches was too much for me to resist, myself.