It is normal for your iPod Touch to get warm when it is charging or when it is on for an extended period of time. It should not get really hot though. If it is overheating then there may be a problem with the battery. Older versions of the iPod Touch used to have a problem with getting hot, but it has been fixed in newer versions. If it is still under warranty then I suggest getting a replacement.
There is nothing wrong with using an iPod while it charges. Every time you plug an iPod into a computer, its processor is active, the operating system is running, and the battery is getting power and the iPod becomes hot.But if it is overheating there may be a problem with the battery.