hi trolly. Im an iphone 3g owner, so i can answer your questions realistically

Yes, the touchscreen is amazing. Its unlike any other touchscreen you have used
No, the keyboard isnt too small to use by hand. It can be used easily in 1 hand or 2 hands. (25wpm for me with 1 hand, 40 with 2). A stylus is not needed, as everything is designed for finger use. (you have big icons, and buttons, and all that).
mp3s have to be added through itunes, although no converting is needed.
flv and avi video files need to be converted to .mp4 files. The time it takes depends on the program you use and your pc. I use winavi video converter to convert my avi videos to mp4. It takes about 10 minutes per 700mb dvd ripped video file, and the size ends up being about half of for avi size (for example, a ripped dvd avi at 700mb is a 400-450mb mp4. It does take more room having both files, but i see no reason to keep the avi once you convert it to mp4. (the mp4 is the same quality as the avi anyway)
In summary, i would recommend it very much.
Hope this helps