How To Jailbreak the iPod Touch
First step, need some programs.
iTunes
redsn0w 0.9.2
Spirit
Download all the PC versions.
Now we need to get your ipod touch and find out what we are dealing with. Open your ipod, tap settings then go General > About. You should see some info about your ipod, scroll down or slide your finger. You will see Model and a number beside it.
If your Model number started with MB it will need to be downgraded to the firmware version 3.1.2, to do this we must open iTunes. Plug your ipod into the computer with a usb cable. Wait for the sync to finish. Before we downgrade the firmware we will need the firmware that we are actually going to upload onto it. It can be found here. So you have your firmware now. Go back to iTunes and select the ipod screen. You will see the restore and check for updates buttons. Hold down SHIFT on your keyboard and click on restore. A windows will pop up with a firmware selector. Pick to the 3.1.2 and your ipod will be downgraded. After its done, DO NOT restore backup. Set up as new ipod. Name it HACKED BY (your dsrg name). Now comes the fun part. Open redsn0w and make sure iTunes is completely closed. redsn0w will ask you for your corresponding ISPW. Once again pick 3.1.2 It will ask if you if your ipod is an MC model, click NO. It will then prepare the data. Then a screen of options will pop up. Check the boxes: Install Cydia and Verbose Boot. If you would like a custom boot up logo i have made some for it right here. So now that you have your ipod connected and all your options are good, we can now start the jailbreak. The next screen will show that you need to connect your ipod in recovery mode, How to get it into recorvery mode Now that it is in recovery mode the rest is simple just go ahead and jailbreak it. This will go pretty fast. After done click finish. The rest will be done on the ipod. When it is done loading you will see the ipod boot up (with your new custom logo) and go through a bunch of line commands. It will finish in a few seconds. And thats it. Your ipod is fully jailbroken and able to put on cracked apps and has cydia.
Remember when we talked about Model Numbers? If your ipod touch has a model number that starts with MC, you will need to use Spirit. This is a much faster process.
When your ipod is connected to your computer update it to the 3.1.3 firmware. When it is at the 3.1.3 firmware, close iTunes and open up Spirit. It will be a little window that will have the info about your ipod. It will probably say Ipod Touch 2G 3.1.3. Your ipod does not have to be in recovery mode to do this. Just make sure you have a secure connection. Click the JAILBREAK button. Your ipod will say a bunch of stuff, ignore it. Soon after it will be done and you will see a loading screen on your ipod. Wait for it to load and the jailbreak is done after that. Same results as redsn0w but with no boot logo.
Now most of you are wondering what is Cydia? Well its where most of the cool jailbreak stuff comes from. When u first open it make sure you are connected to some kind of Wi-Fi network. Let it load (this may take a minute or two) and a menu will pop up. Most people pick Hacker. If you have no idea of what your doin just pick the Basic option. Hacker has a couple more settings that can be usefull sometimes. Developer is for people who wanna make there own jailbreak apps and themes, if you know how to do this you probably don't even need to read this guide. Anyways after you pick one it will be done. You will be a little bubble over the changes option at the bottom. Tap that and download all the changes that you need, or it will not work properly. Pretty simple stuff, then you are done just play around with cydia and you find lots of cool stuff.
Conclusion,
Congratz you now own a jailbroken ipod touch. But there is some stuff to remember.
DO NOT UPDATE or RESTORE, the jailbreak will be gone.
it works with iTunes, so dont try any other programs
apple will give still give you a new one even if your ipod breaks.
If you think nothing happened, your wrong - cydia will be on the next page so dont go insane yet.
Heres my custom jailbreak and what your ipod should look something like when its done.

MANAGED TO TANK YOUR IPOD?
Well there are some ways to fix this.
1. Get your ipod into recovery mode (video is above)
2. Restore to factory settings FROM THE IPOD then restore on computer
3. RESTORE RESTORE RESTORE
4. Get this and play around with the raw data storage to see a problem
When all else fails, theres this
Notice,
THIS HAS BEEN TESTED WITH IPOD 2G AND 3G. ANYTHING DONE WRONG COULD RESULT IN DAMAGE TO THE IPOD. AND DONT SEND ME HATE MAIL IF YOU DID SOMETHING WRONG, OR I WILL TELL ADL_242 AND HE WILL YELL AT YOU FOR ME.
If you have a real question and not a angry message, just PM me and i'll try to answer your question
TerraPunks