Stuff I've been playing with lately:
Plants vs. Zombies (PopCap game, well done on iPod Touch/iPhone)
Sailboat Championship (free game racing sailboats, using finger to control sail direction--there's also Sailboat Championship Pro which has more courses that are also tougher, but it's not free)
Wild West Pinball (99 cent pinball game that's surprisingly fun)
And the old standbys, Homerun Battle 3D and Canabalt.
Non-games include the Kindle app (reading Infinite Jest now), White Noise (which has many different types of noise, not just white), Errands (a free task manager that is really useful for grocery lists and such), 1Password (password manager).