Hey guys, well this happened to me so I'm sure it happened to others also.
Basically I didn't know much about jailbreaking, I seen that you could jailbreak on OS4 so I updated, only to find out that you can't jailbreak MC models...which I happened to have. So now my dilema was downgrading from 4.0 to something earlier (I chose 3.1.2) so that I could jailbreak, and have a jailbroken device while I waited for the 4.0 MC model break.
So here's what I did, and hopefully you can follow it and get it working for yourselves also.
First of all you should already have iTunes 9.2 installed.
Next you want to navigate to C:\Windows\System32\drivers\etc\hosts (Windows) or /etc/hosts (Mac OS X)
open the "hosts" file with notepad (right-click>open with>select notepad) and it should looks something like this
You want to do what it says, adding "74.208.10.249 gs.apple.com" (without quotes) to the bottom of the text file. Then save the file.
Ok now you want the 3.1.2 firmware.
you can go here -
http://www.felixbruns.de/iPod/firmware/ and download it from there, the one you want is "iPod touch 2G (3.1.2/7D11)"
Once downloaded load up iTunes 9.2, click your iPod icon on the left hand side then hold SHIFT and click on RESTORE, it should bring up a browsing window at which point browse to where you saved the 3.1.2 firmware (it will by default be called "iPod2,1_3.1.2_7D11_Restore.ipsw" double click it and iTunes should begin the restore process.
Obviously back up anything on your iPod/iTunes that you want to keep, I had nothing I wanted to keep so I skipped this step.
Once restored your iPod should reboot and be completly blank except for the default apps and it should show as Firmware 3.1.2 in your settings.
Ok. So now you have a Firmware 3.1.2 iPod touch 2G you are going to want to jailbreak it huh?
The next step is to UNINSTALL iTunes 9.2, you will have to restart your computer after it has finished, so remember to bookmark this page for when you are back online!
Once uninstalled you need an earlier version of iTunes, I used 9.1.1 which can be found here -
http://support.apple.com/kb/DL1037 MAKE SURE YOU DOWNLOAD THE APPROPRIATE FILE FOR YOUR SYSTEM (32bit/64bit)
Once downloaded and installed go here -
http://spiritjb.com/ and download the Spirit jailbreak.
When downloaded, connect your iPod to your computer, run Spirit and hit jailbreak, easy as that.
Your iPod should reboot with 1 added app - Cydia, your iPod is now jailbroken and untethered.
Hope this helps some of you out, sorry it's a bit long but these are the exact steps I did (after a few days of trawling the internet and messing about with different programs/firmwares etc) There probably is a far quicker way to do it, but this is just my attempt.