I have around 2.6GB worth of music and probably want to put a few Simpsons episodes on it and maybe 1-2 movies. Will 8GB be enough for me? A 16GB in Australia costs $550

You will be cutting it close but you should be able to do it.

Yea i think it will be enough.

Well it states that the 16GB itouch can hold 20 hours of video when encoded with with apples standards.

From apples website : "Video capacity based on H.264 1.5-Mbps video at 640-by-480 resolution combined with 128-Kbps audio; actual capacity varies by content."

This would suggest that 1 hour of video = 1.25GB. So 2 movies would be around 5GB

So 2.5 GB of music, plus 2 movies should only be about 7.6GB.

^^
It's actually

1h = 800mb

Encode the movie in a lower resolution matching the screen and you save even more space.

What do you think the lowest I could get the movie down to? I think the Simpsons episodes are about 150 meg each. Could they be reduced too?