So, I was poking around the CyanogenMod site earlier, and let me see if I understand this correctly: after rooting, no matter what ROM I put on, the phone is gonna say I'm running firmware ver. 1.5?
That's gonna cure my interest in rooting. No way am I gonna further restrict what apps I can have.
No no no no
What fun would a phone be if you had to stay in 1.5 Cupcake all the time?!
So in order for rooting to work your phone needs to temporarily be reverted to 1.5 in order to pass by some security measures implemented in 1.6, but then from there, I would start with Cyanogenmod ROM, you can put any ROM you want on it.
Here's what I think the best way to go is, especially for Mytouch users -
Follow Cyanogen's directions in his wiki, flash his ROM. Get used to it and tinker around on XDA Developers forums for awhile, just experience being rooted, however it sometimes sounds like going to a different planet, but remember its just like an improved version of Android's default Donut ROM, the one the phone comes with, so it isn't totally different in operating but there are more capabilities.
So after you have flashed Cyanogen's Rom go and would discover other roms and flash those to your phone. Right now I am using Super D 1.9.2, its super fast and very smooth, similar to Cyan's yet different. Both of those roms are 1.6 Donut roms, however there are 2.1 Eclair roms like OpenEclair and also 2.0.1 roms and many others, they aren't all locked into the capabilites of 1.5. Like I said they just wouldn't be fun like that. And whatever firmware build the rom is for, for example 1.6 for Cyanogen, then you can run 1.6 apps, and OpenEclair can run live wallpapers like the Nexus One.
One more thing to remember, as you browse the XDA forums you'll notice that it seems like everyone has the Danger or Death or Haykuro SPL, this is the Secondary Program Loader and it is necessary for G1 users to apply to their phones, in order to free up internal memory so that the custom roms can fit into the internal memory supply better. However because Mytouchs have more internal memory than G1s we don't need the Death SPL.
Also, you can see what your Radio is on your phone by powering on by pushing power and volume down at the same time. The latest Radio is 2.22.19.26I and I believe that comes stock on the Mytouch. So if that is on your phone then you are usually good to go with most ROMs, otherwise you'll have to flash a different radio.
I know that this wasn't totally a response to Instant's comment, but hopefully it'll help others' always wondering about some of that stuff. So have a great day rooting!