My kids have jailbroken their ITouches and it seems to be similar to rooting in some ways. They did it more to install cool themes, but I think there are also apps they can get that are not available in the Apple app store.
As for which new phone to get, I'm in the same boat. My contract is up in May and I really want to get a cutting edge phone. The Hero has been great, but I'm definitely facing some EOL issues. I may find a stopgap like a used Nexus S and stay out of contract until something big comes along.
Are there any rumors out there for the next big Sprint phone to drop? Or is everything on hold until LTE gets sorted out?