Although both of my kids are four years apart, they have similar digital tastes. I've found items like Leapfrog's Leapsters to be helpful during our 35 minute plus commute to school, and I decided they were ready for iPods when their last birthdays rolled around (both were born in October). I purchased the last version of the iPod Nano (the square chunky model) along with iTunes gift cards for them in addition to loading up the MP3 players with content that I thought they'd enjoy.
So far, so good in terms of their use. My fourth grader, Julia, has learned how to select content in our iTunes library and sync it with her iPod. Both keep their headphones and iPods in plastic bags most of the time for easy transport and protection. Henry has a lamp that plays the iPod and he listens to audiobooks and music at bedtime. Julia has a clock radio that does this, too, but it hasn't worked as well as the lamp.
In terms of content, we can fit about one movie (the current selection is Alvin and the Chipmunks) and a slew of audiobooks and podcasts on the iPods. Both kids love a Webkinz podcast; Julia tends to gravitate towards audiobooks and Henry is learning a great deal from video episodes from the National Geographic channel in iTunes. Here's a video that I did with Henry about what he's learned so far.