Headphone jack is broken?

It is a broken headphone jack, either send it in for servicing or make a Genius Bar appointment at your nearest Apple Store. Make sure you backup/sync before you do this.

Just curious: do you wrap your headphones around your Touch when you are through listening?

Notice how much thinner your iPod Touch is than your other ones? Or you were just lucky.

When you wrap your headphones around your Touch, iPod, etc., with the headphones still plugged in you put lateral torque on the headphone jack. Eventually it is going to pull it sideways enough that the small headphone connection begins to break.

Before wrapping them carefully unplug the headphone jack, never pulling by the cord, then wrap them.

But in the meantime it will be covered under your warranty. Are you near an Apple Store?

I didn't get my iPod in an Apple store, I don't think there are any where I live. MY mom's friend bought it at a Wal-Mart I believe. I already have more than a year with mine and I think that already happened to my iPod. I don't know how much it will cost to fix it and the screen is broken also.

Here is one place that does repairs:
http://www.iresq.com/
Here are Apple's prices (out of warranty). Since your screen it broken the repair would be out of warranty. In actuality they exchange your iPod with a used one that has been refurbished.
http://www.apple.com/support/ipod/service/prices/#us