New Jailbreak for iPod touch 2nd gen owners (checkout redsn0w.com)

THIS IS A *****  TETHERED ***** JAILBREAK
IF YOU DON'T KNOW EXACTLY WHAT THAT MEANS, DON'T USE THIS!

There are many ways to do this.  Here's one way that will probably
work for you.  If it doesn't, please don't come to use for support.
We're working on an untethered version.

This is for Mac only.  But you should be able to find (or work out
on your own) how to do it on Windows or Linux too.

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rslite
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This is an interface to the DFU and Recovery modes of the device.  It
requires you to have libusb installed on your Mac.

Due to buggy interaction between libusb and the Apple device, any output
that is long gets all chewed up.  But if you stick to just the "!" and
the "#" commands, you won't notice.  We don't normally use this tool
but it's a lot easier to distribute and compile than the GUI we use.

The "!" (exclamation point, no quotes when you use it) sends a file.
The "#" (pound sign, no quotes when you use it) sends a script.
In both cases, you name the file right after the symbol.


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Basic instructions
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Note: these are the bare bones instructions.   Please don't come to us
looking for more detailed instructions.

Preparation
1) Copy the FirmwareBundles and CustomPackages directories into
  your PwnageTool.app/Contents/Resources directory
2) Create a custom 2.2.1 ipsw with PwnageTool in Advanced mode.  Don't
  enable custom boot logos. 
3) From your custom 2.2.1 ipsw, extract these (patched) files:
  iBSS.n72ap.RELEASE.dfu    (name it iBSS221pwn.dfu)
  iBoot.n72ap.RELEASE.img3  (name it iBoot221pwn.img3)
4) From the official 2.1.1 ipsw, extract this (unpatched) file:
  iBSS.n72ap.RELEASE.dfu    (name it iBSS211.dfu)

Installing the jailbroken custom ipsw
5) Put your ipt2g into DFU mode using keypresses.  Don't have iTunes running!
6) Start rslite.  Send the official iBSS from 2.1.1:    !iBSS211.dfu
7) Start rslite again.  Send the redsn0w-lite patch:    #pwn211ibss.txt
8) Send the patched iBSS from 2.2.1:                    !iBSS221pwn.dfu
9) Use iTunes to do a full restore using your custom 2.2.1 ipsw

Tethered boot
After the install, your ipt2g will not be bootable without assistance
from a tethered computer.  The method in this README.txt requires you
to go into DFU mode, but you should be able to find (or work out on
your own) other more convenient ways.
10) Repeat steps 5-8
11) Send the patched iBoot from 2.2.1:                  !iBoot221pwn.img3

Your homescreen should soon show up.  You can then start iTunes.

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Jailbreaking Update

To jailbreak the 2.1 firmware on Windows, download QuickPwn. If you want to unlock your iPhone, you will need to download bootloaders 3.9 and 4.6. You can download those at iphone-hacks.com. There is a new version of iPwn for Mac that can jailbreak and unlock firmware version 2.2.

Jailbreaking

Most people know what jailbreaking an iPhone/iPod touch is, but only about half of the owners have jailbroken their devices. Why not more? Because they don't know the facts. Fact: no iPhone or iPod has been broken trying to jailbreak it. Fact: many people are scared of losing their warranty, so they don't jailbreak. Fact: there are many different programs that let you un-jailbreak your device if you need your warranty. If you ever need your warranty, re-virginize your scripts(download an app for this off Installer or Cydia), then restore your device.
To jailbreak your device on your computer, download iPwn for Mac, or WinPwn for Windows. There is a short intro form on how to use these once you download them.(Don't worry, they are not buggy and will not mess up your computer. No comp crashes EVER reported.) Once you have jailbroken your device you can download non-Apple indorsed apps via Cydia or Installer v 4.0(these were where Apple got the idea to create the AppStore from). And you can still use the AppStore.