Q: Is Apple joking -- a 655.8 MB update?

You can update it via OTA (Settings > General > Software Update) because it downloads less than updating via iTunes (if you have Wi-Fi). The update weights 655 MB because iTunes downloads all the OS, and not the parts that are updated

The iOS update via Settings>General-Software update is only available after you updated to iOS 5 via USB

Do you ever get near an Apple Store?  If so I'm sure they would update it for you.

I feel for ya guy, i really do.  I used to live in a rural area and the only access I had was with an "air card" USB modem.

About the only hope you have is if you have a friend who has a high speed connection.

OTA is over the air.

What model iPod do you have?

To update

The Settings>General>Software Update comes with iOS 5 and later.

Connect the iPod to your computer and update via iTunes as far as your iPod model allows

iOS: How to update your iPhone, iPad, or iPod touch

A 1G iPod can go to iOS 2.2 via iTunes and iOS 3.1.3 via         

Purchasing iOS 3.1 Software Update for iPod touch (1st generation)                   

https://buy.itunes.apple.com/WebObjects/MZFinance.woa/wa/touchLegacyLandingPage               

- A 2G to 4.2.1. Requires iTunes version 10 or higher. If a Mac it requires OSX 10.5.8 or later.

- A 3G to 5.1.1  Requires iTunes version 10.5 or later

- A 4G to 6.1.6  Requires iTunes version 10.7 or later. For a Mac, that requires a Mac with OSX 10.6.8 or later

- A 5G to iOS 8 Requires iTunes 11.4 or later if you update via iTunes

  Identifying iPod models