I would trow it away till there are 1000 peaces (did it with the iPhone 1G), or find an excuse so Apple ship you a new one. (did that with my Touch^^)
I've got a screen protector for the front and back for when I'm using it, and when I'm not using it it's in a Fabrix case. (Chalkboard model: http://farm4.static.flickr.com/3095/2590799848_03a30bf6dc.jpg?v=0 ) So you can guess that I'd rather not see it scratches or damaged...
I keep a screen protector on it, after a medium sized scratch showed up. I don't mind the back getting scratched, just the screen. I used to have a case, but it added up to the bulk of an iPhone, and I can't have that. My iPod Touch 2G is too thin and powerful for all that.
I have a super-thin clear plastic screen protector on the front, and the endless summer gelaskin on the back. Gelaskins is an awesome company, check them out... www.gelaskins.com
I hate scratches!!! I have a small one, and I ended up then getting a clear plastic screen, but I guess it's too late for that now. At least I won't be getting any more.
I use Belkin Leather Folio all the time. BTW I plan to buy myself a invisibleShield. It's being used in military helicopter. Find it on their website.
i have tons of scratches all over the back, but not a single thing wrong with the screen. A couple months ago i dropped it down a lllloooooonnnggg tile staircase and there wasnt a single thing wrong with the screen. I was lucky i guess. My friend got knocked by someone in the locker hall and dropped it like 2 feet and the screen completely shattered. It was funny. He said he dropped it screen down and thought it would be fine, then he picked it up, turned it around, and it was obliterated.
I told the iPhone was dropped from a protector that I bought in their store, and that went open and my iPod was damaged.. I was shipped a small box where I need to send my iPod in and then they shipped me a brand new iPod ! A year ago or something..
I managed to dent my iPod :'( on the back I now take it everywhere in a case. The screen on these things are buff as tho. Look up on YouTube 'iPod touch scratch test' or something. This guy attacks the screen with keys and razor blades and it doesn't get A scratch. That's good quality.