OS 3.0
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:
-
C:Documents and Settings USER NAME Application DataApple
ComputeriTunesiPod Software UpdatesiPod2,1_3.0_7A341_Restore.ipsw
Step one
Extract 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.exe 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.

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
Firmware 2.2.1
QuickFreedom

Version 1.2.0
QuickFreedom is here! Previously known as QuickTether, QuickFreedom
lets you jailbreak your iPod Touch 2G fully without booting and
untethered!
DOWNLOAD VERSION 1.2.0 Beta: link
What is QuickFreedom?
QuickFreedom is the first iPod touch 2nd Generation Untethered GUI
program that allows you to quickly Jailbreak your iPod touch.
QuickFreedom works on Windows XP and Vista (64-bit and Windows 7 also
may work) QuickFreedom is the 1st "Untethered" GUI to support full
jailbreak and boot logos. (This may also work on Mac using VMware, if
iTunes is installed on that partition)
Features:
Full Untethered Jailbreak!
Easy to use 5-step process to Jailbreak your 2.2.1 firmware iPod
Use custom boot and recovery logos
Change Logos without full restore
Install Cydia and Installer (Optional)
Full DFU instructions for Pre-Jailbreak
iPod recognition of current connection state
Full Support
100% Free
Beta
This program is still in the Beta Testing stages and their may be some
problems still existing in certain versions of Windows. I am still
working on several solutions to some problems. Make sure you have
downloaded the LATEST version to get the most up-to-date fixes.
Redtool

redTool, Meet logoManager
logoManager is a new way to take control of your logo collection. No
more pain and hassle recreating firmwares just to change the logo, now
you can do so much more. You can convert IMG3s to PNGs or vice versa on
the fly, and it takes mere seconds. You can even connect your device in
recovery mode in order to preview the logo directly on the iPod -
without restoring.
A bit of history regarding redTool: redTool was originally announced
on February 5th and has been growing ever since. redTool was the first
and only GUI that was capable of doing NOR only firmware creation, and
still is to the date of this writing. redTool will continue to grow
into a full fledged backup utility to merge your iPod's current state
into a backed up firmware, where you can restore and never have lost a
thing. We (The IRC testers and I) have a lot of plans for redTool, but
we'll continue to release them in increments, stay tuned.
redTool was also used to develop the 24kpwn exploit. King Chronic
told me this personally on IRC one night, just another reminder of how
great and dependable redTool is when used correctly
System Requirements:
* Windows XP SP2+/Vista SP1+
* Microsoft .NET 2.0 or higher
* LibUSB
* Original Apple 2.2.1 iPod touch firmware
Instructions:
For Windows XP:
Simply Download and run redTool.exe, or optionally use the Installer Bundle to Install and run redTool
For Windows Vista:
Download redTool and set redTool.exe for Administrator mode and
Compatibility mode for Windows XP SP2. Also, set the same properties
for each executable in the "redTool.Bundlerslite*.*" Directory.
Download Site: Click Here