Jailbreak iPod

Redsn0w 0.7

Download the Redsn0w 0.7 from here

NOTE*: The iPod touch 3.0 firmware must be purchased from iTunes. iTunes will save the firmware files here:
~/Library/iTunes/iPod Software Updates/iPod2,1_3.0_7A341_Restore.ipsw

Step one

Extract the redsn0w application from the RedSn0w zip file to the Pwnage folder.

Step Two
Connect your iPod Touch to the computer and launch iTunes.

Select your iPod Touch from the list of devices on the left. Now hold down shift and click the Restore button. Restore is preferred as it won't create any wasted space on your iPod Touch.

Navigate to the Pwnage folder on your desktop and select the firmware ipsw. Click the Open button to continue.

Step Three
Once iTunes has finished updating your iPod Touch to the desired firmware you may launch redsnw0w.app from the Pwnage folder on your desktop.

Step Four
Once RedSn0w opens click the Browse button

Step Five
Select the firmware ipsw we placed in the Pwnage folder on our desktop then click Open

Step Six
Once the firmware has been verified click the Next button to continue.

Step Seven
Make sure Cydia is selected and click the Next button.

Step Eight
Please plug your iPod Touch into the computer and make sure its OFF then click the Next button

Step Nine
RedSn0w will now guide you through the steps to get into DFU mode. You can find more help with DFU mode here

Hold down both the Home button and the Power button for 10 seconds.

Release the Power button and continue holding the Home button until RedSn0w detects the device.

Step Ten
Your iPod Touch will now reboot

Step Eleven
RedSn0w will then begin uploading the new RAM Disk.

Step Twelve
Once this is complete you will be notified that RedSn0w is done. Click the Finish button.

When your iPod Touch finishes reboot (5 minutes or so). It will be jailbroken with Cydia on the SpringBoard.

Source: iClarified