You don't necessarily need to take back the 16GB and get the 8GB. Since I was paying for it, I decided that I didn't need all of that capacity - and I'm willing to swap stuff out every once in a while. Now, if someone were to buy me one, I would love to get the 16GB ;).
As for cases, I'm always looking for a better one. So far, I have the Incase pink neoprene sleeve and the Griffin Elan Convertible. I have tried out 2 armband systems - Marware sportsuit and Griffin Streamline - I didn't like them and decided I don't need an armband. I'll use my Nano or one of my Shuffles for working out instead. I've put out the word to family and friends that an iPod Touch case would make the perfect gift for me, along with an iTunes gift card. If you're giving a Touch as a gift, get a case. It makes it more grippable (I almost dropped it on concrete when showing it to a friend - before cases were available for it) and provide some protection from drops.
I just have the Stone (1GB, no screen nor fm tuner). It sounds good but I don't like the order in which it plays back music (supports folders, but playback is numeric, then alphabetical - so all of the track 01's play in alphabetical order, then the track 02's if you keep several albums in the same folder). I just keep it on shuffle so it doesn't get too annoying. I believe the Stone Plus works the same way. I prefer the Sansa Clip because it has a screen - it's much bigger than on the Stone Plus.
As far as buying downloadable music, I mainly use iTunes, but that's because I have iPods. And because most of it is copy protected, I can't put them on any other player unless I burn to audio cd then rip back to computer, which I don't bother with. iTunes does sell some of their songs without copy protection (iTunes Plus), but they are in AAC format. Some non-iPod players, such as the Creative Zen and the Zune, will play unprotetected AAC files. You can also convert unprotected AAC files into mp3 files within iTunes.
I've never heard of the $30 for life Rhapsody deal. I pay $39.99 every 3 months for the to go version that allows you to put the music on upto 3 computers and 3 supported mp3 players. iPods are NOT supported. This is a music subscription (like renting music), so you can't burn to cds unless you buy the tracks, usually .89 per song. Once you stop paying the subscription, you can't play the downloaded music anymore, unless you actually purchased the songs/albums individually.
If at all possible, buy mp3 format. There is no copy protection on them, so you can play them on any player, including iPods. eMusic and AudioLunchbox have good services, but it's not an all-you-can download service. You get something like 30-40 songs per month or more depending on the service level chosen. And these services mainly deal with independent artists/labels, so you won't find the latest from Britney, Christina, or Justin.
Amazon.com also sells mp3 downloads, but you pay per track or album so it's not a subscription service. And unless things have changed, the purchases must be charged to a credit card - you can't use the Amazon.com gift certificate.
I don't know if any of the other players you mentioned are Mac compatible. My guess is that if they are, they would do so by mounting as an external drive and you would transfer music by drag and drop - so you wouldn't be able to use Rhapsody. But I am guessing here.
If I was getting an Archos, I would probably go for one of the newer ones, so that would be the 605 wifi - I would want a bigger screen for movie viewing. Again, which one you give as a gift really depends on the preferences of the recipient. Do they want a hard drive player or a flash based player? How big of a screen do they want? How big of player do they want (physical size as well as capacity). What file formats do they want to play? Do they have purchased downloads? Related question - did they buy music from iTunes and are they willing to go through the process of burning then ripping to get that music onto a non-iPod player, play them only on the iPod, or start all over again? How tech-savvy are they? How about asking them what they want? I know, it ruins the element of surprise...
You could continue to buy iPods for them. If they decide to make the switch to non-iPod they can buy the players themselves and figure out what they want to do.