You'd be missing out if it was 2nd gen (slower cpu, older gfx, less ram, no multi-taking - if it wasn't jailborken).
However, The 32GB 3rd Gen ipod has the improved cpu and gfx chips from the iPhone 3GS so it's not far off from the apple A4.
The only thing you'd be missing is the retina display and the cameras - so not bad at all for £120.