Based on jfb392's Guide

What you'll need:
redsn0w lite
XPwn
iRecovery
LibUSB
2.1.1 IPSW
2.2.1 IPSW
http://citadel.x10hosting.com/readydriverplus/ http://www.ngohq.com/home.php?page=dseo 01) Create a c: edsn0w folder. 01) Extract XPwn to c: edsn0wpwn 02) Extract rslite to c: edsn0w slite 03) Extract iRecovery to c: edsn0wirecovery 04) Extract iPod2,1_2.1.1_5F138_Restore.ipswFirmwaredfuiBSS.n72ap.RELEASE.dfu to c: edsn0wirecovery and rename "ibss211.dfu" 05) Rename "iPod2,1_2.2.1_5H11a_Restore.ipsw" to "orig221.ipsw" and copy to c: edsn0wpwn 06) Delete "FirmwareBundles" from c: edsn0wpwn 07) Copy "FirmwareBundles" from c: edsn0w slite to c: edsn0wpwn 08) Open a cmd prompt to c: edsn0wpwn and type: ipsw orig221.ipsw pwnd221.ipsw -s 700 bundlesCydia.tar 09) Extract pwnd221.ipswFirmwaredfuiBSS.n72ap.RELEASE.dfu to c: edsn0wirecovery and rename "ibss221.dfu" 10) Extract pwnd221.ipswFirmwarell_flashll_flash.n72ap.productioniBoot.n72ap.RELEASE.img3 to c: edsn0wirecovery and rename "iboot221.img3" 11) Open Device Manager, expand the USB section, and boot your Touch into DFU mode so that it shows up in Device Manager as being in DFU mode. 12) Extract everything from libusb-win32-device-bin-0.1.12.1.tar.gzin to c: edsn0wibusb 13) Create c: edsn0wibusbipt2g-dfu 13) Create c: edsn0wibusbipt2g-iboot 14) Run c: edsn0wibusbinf-wizard.exe, select your DFU mode Touch, and save your inf file to c: edsn0wibusbipt2g-dfuipt2g-dfu.inf 15) Copy the files from c: edsn0wibusb to c: edsn0wibusbipt2g-dfu 16) In Device Manager, update the driver for your DFU Mode Touch, Browse for the new driver, Let Me Pick, Have Disk, choose the inf file in c: edsn0wibusbipt2g-dfu 17) Open a cmd prompt to c: edsn0wirecovery and type: iRecovery -f iBSS211.dfu 18) Unplug the Touch and replug it after 10 seconds or so, the screen should turn white, and Device Manager should show it's now in iBoot Recovery Mode instead of DFU Recovery Mode. 19) Repeat steps 14-16, using "ipt2g-iboot" instead of "ipt2g-dfu" 20) In the cmd prompt already open to c: edsn0wirecovery type each of these commands: iRecovery -s arm7_stop mw 0x9000000 0xe59f3014 mw 0x9000004 0xe3a02a02 mw 0x9000008 0xe1c320b0 mw 0x900000c 0xe3e02000 mw 0x9000010 0xe2833c9d mw 0x9000014 0xe58326c0 mw 0x9000018 0xeafffffe mw 0x900001c 0x2200f300 arm7_go arm7_stop /exit 21) In Device Manager, change your iboot driver back tot he original Apple driver. 22) Launch iTunes, select your iPod, hold Shift and click the Restore button, and select c: edsn0wpwnpwnd221.ipsw 23) After restoring, close iTunes, and your Touch will probably have a blank black screen, and Windows may say it's an Unknown Device, THIS IS FINE! 24) You need to boot back into DFU Mode, which can take some tricky timing as you're doing it blind, you'll know you have it when Device Manager shows it. Note: I was really worried at this point, as Device Manager quit showing anything, and was refreshing constantly as if the device was constantly cycling, but it was fine. It was just hard to get into DFU Mode again. Just hold Power+Home to turn it off when Device Manager stops blinking, let go and repress and hold Power while still holding Home, after a few seconds, let go of Power. Again, you'll know you have it when Device Manager shows it as the DFU Mode driver. 25) From a cmd prompt in c: edsn0wirecovery type: iRecovery -f iBSS211.dfu 26) Unplug and replug the Touch, change the driver back to your custom iboot+libusb driver. 27) From a cmd prompt in c: edsn0wirecovery run the following: iRecovery -s arm7_stop mw 0x9000000 0xe59f3014 mw 0x9000004 0xe3a02a02 mw 0x9000008 0xe1c320b0 mw 0x900000c 0xe3e02000 mw 0x9000010 0xe2833c9d mw 0x9000014 0xe58326c0 mw 0x9000018 0xeafffffe mw 0x900001c 0x2200f300 arm7_go arm7_stop /exit iRecovery -f iBSS221.dfu iRecovery -s go /exit iRecovery -f iBoot221.img3 iRecovery -s go /exit 28) SUCCESS! My iPod booted normally, showed up in Device Manager as "Apple iPod" and showed the cable and iTunes symbol on the screen. Launched iTunes, and it had me set it up, I choose set it up new, and there was Cydia. 29) Repeat steps 25-27 on subsequent reboots. 30) Enjoy your tethered jailbreak.