There is no Mystery here on how to do this , so heres my quick and easy HOWTO.
Backup any Music or apps on your ipod (you should already have a copy on iTunes anyway)
Go to http://www.redsn0w.com
Click on the “info here” button which takes you to http://blog.iphone-dev.org/post/126908912/redsn0w-in-june
Scroll to the bottom and download either the Mac or the Windows version.
On your hard drive you should have a copy of the iPod Software, its hidden kinda, but this is where you will find it
On a Mac, look in your Music/iTunes/iTunes Music/Apple Inc_/iPhone 3.0 Software Update for iPod touch/iPod2,1_3.0_7A341_Restore.ipsw
Unsure where it is on a Windows machine, but just use the find/search for it. If you dont have this on your PC, easyest way to get it is just plug in your iPod, click ‘Restore’ and it will download it.
Run the Redsn0w application.
When it asks for the iPod software point it at the iPod2,1_3.0_7A341_Restore.ipsw file
Click Next repeatedly until its finished. It does take you through holding down various buttons to put the iPod into disk mode. Dont stress if you are to slow, just keep trying it until you get it right (I managed it first time ok).
Its important to note it gives you the option of Icey and Cydia and the default Cydia is checked and Icey is not. DO NOT CHANGE THIS! Icy by default is broken, once you open Cydia the first time it will update and install Icey fine.
Don’t stress if your screen sits with various things for a while on the iPod after the application has finished. It takes time to finish unpacking (several minutes at least) and then reboot.
If for any reason your iPod completely screws up, hold down the Home button and the power at the top for 5 seconds and it will reboot, you can re-run the jailbreak installer at this point.
Once its installed it will boot your iPod and look identical. Open Cydia and let it update (best if you have wifi available). Install a few themes and whatever else. done!