Essentially I guess you could just set it up with no SIM card.
Just curious, but why not just get another iPod? Same cost, and if you already have iTunes with your current iPod it seems to make more logical sense. But it is up to you!
I suppose you could. I had never really considered that, but I guess there is no direct Android equivalent to the iPod.
As for "why not just get another iPod"...my response would be that iOS is kind of a chore to use. Using an Android phone is like using a USB stick. You just copy and go. The Nexus display is probably going to be better as well. And of course there is also the option of using it as a phone if you ever need to.
If I needed a media player I would probably do the same thing.