I was able to replace IOS 4.2.1 with the real Apple IOS 4.1 through iTunes 9.2.1 by using the tips found at
http://www.ihackintosh.com/2010/11/downgrade-ios-4-2-1-to-4-1-for-iphone-ipad-an d-ipod/
The tricky part is this that you must follow Steps 1-3 as it says and then only follow step one just after. When you force your iPod in DFU mode again (showing the itunes icon and USB plug) unplug from the computer running iTunes 10 and plug into the one running iTunes 9.2.1.
If the computer with iTunes 9.2.1 is a Mac running OSX 10.4, then force shut-down your mac right away. Restart your mac and then turn on iTunes only. The iPod will synch with iTunes and then you can restore from that mac or a backup.
Your music and other files will be gone but you can now use the device with OSX 10.4
Hope this helps.