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yes, it does have an app for netflix. you can use it to watch shows streaming on netflix from your phone, but it seems the stability is rated a little low.
You can install the Netflix app on your iPod touch. Or just use a tool(NoteBurner Netflix Video Downloader) to download Netflix movies and TV shows in MP4 or MK4, then transfer them to your iPod touch.
Free movies can be watched on many free video hosting websites like megashare, zshare, etc... the links to these movies can be found on some movies listing directory also containing movies links. you may like to give a try to www.thefilmwall.com.
netflix... maybe hulu
Nope, Netflix is completely virus free.