First, take a look in iTunes and check if all the apps that are important to you say (iOS4 tested) on them, and/or check up forum threads to see if the apps have problems. (For example, many of Smule's apps chop up on 2nd gen iPod w/iOS4...) I posted my experience upgrading my 2nd gen iPod Touch to iOS4 in this thread. If you have a lot of apps/data, (like I do) my recommendation would be to make a backup and make sure you have all your music/videos/etc in iTunes, then download (but don't install) iOS4. Then perform a restore of your backup and sync to put all your music/apps/etc back on. This should be much faster than just using iTunes to update the iOS. Things will be a bit tighter memory-wise in this configuration. I use MemoryInfo quite often to clear things w/out rebooting. The main things you will gain are folders, and the ability to play iOS4-only apps.
