Once you give your ipod to the kids, there are no controls to restrict what they can or cannot do.
Maybe you should set it up correctly before handing it over to the kids.
-- Separate password for downloading free stuff: Why do I have to give my password tied to my credit card to download free stuff? I can give that password when doing in game purchases if I want to.
You don't have to. I don't have a credit card tied to my app store account and I download things all the time.
-- Password restriction on apps: Apple provides restrictions on pre-insalled apps such as youtube. But not for downloaded apps.
You can disable apps based on ratings, but AFAIK that's it. So no real help there.
-- Disable in-game purchases: No, you can't do that
So what does turning "In-App Purchases" off in the settings do?
-- 15 minute window to purchase all you want without password: Fixed only recently.
You can disable both in-app purchases, installing apps, and accessing itunes (buying music) in the settings menu. What's left to purchase?