My opinion is that Apple does woefully insufficient testing on Windows -- at least when it comes to updates on my 16G first gen iTouch.
I received it as a prize in December and promptly tried to update the software from 1.1.6 (I think) to 2.1. I had to take it in to an Apple store to un-brick it.
A month or so later, one of the apps I bought required 2.2, so I tried to update to that level. Again, I had to take it in to an Apple store to un-brick it.
And again -- one of the apps I bought requires 2.2.1, so I tried to update to that level. This time, I tried all of the steps in
http://support.apple.com/kb/TS1275 -- I updated iTunes to the latest level. I restarted Windows. I tried a different USB port. I tried two other computers (one WinXP, like mine, one Vista). I completely uninstalled iTunes, Quicktime, Apple Software Update, Apple Mobile Device Support, and Safari, then re-installed iTunes (which installed Quicktime and the rest except for Safari). I tried with a different userid.
In all cases, on all of the Windows computers, I got the same error.
Finally this morning I tried it using a friends MacBook.
Worked just fine.
Bottom line -- Apple doesn't seem to know how to update the iTouch from a Windows computer.
(And note: I don't have any of the old ipsw files, so I couldn't try restoring a previous version of the software. But since 2.1 and 2.2 didn't work the first time, I don't think it would have this time either.)
--Scott