Waterlogged iPod Touch
Are you interested in purchasing a new iPod Touch? If so, you could check out Apple's Recycling Program.
From Apple's website,

Bring your old iPod to an Apple Retail Store and receive a 10 percent
discount on the purchase of a new iPod.*

I'm not exactly sure if you would qualify due to its screen, but it is definitely worth a shot. Take it an Apple Store and see if they will give you 10 percent off.
From an Apple Discussion Board,

... you can throw it away, bury it, smash it, take it to Apple as
recycling, use it as a paperweight, leave it in a drawer, etc.

Update
I just checked on Newton's Head, and they will offer you $5.50 for an iPod Touch 3rd Generation, water-damaged with all original accessories.
So, it's not going to be worth that much.