No difference in operations, only on the amount of songs, video, etc than can be stored. So if you're never going to get near the 8gb in number of songs, then stick with the smaller.
As to pricing, it is all standard and you'll never really be able to "shop around" unless you're going outside of Ireland and looking at sterling prices etc. Not sure how Apple get around that one with all the price fixing.
What you'll get with it is headphones, a widget for the docking station and usb cable. You have to get iTunes (if you haven't already) from the Apple Website (used to provide a disc) and the detailed operational manual has to be downloaded too.
It's a great piece of kit and surprisingly robust, so don't worry too much about the kids. The touch screen is vulnerable to being hit or sat on, but if you get a good protective case, it'll be fine. Only issue is they don't fit in the docking station with the case on.
My only other point would be that if this is only going to be used in a docking station, then you may not need the iTouch given it is viewed as more than just an mp3 player. If the wife is going to use it out and about, on holiday etc and will use applications, it's worth the buy.