You may have an 2G iPod that can only go to 4.2.1. See:
Try resetting the iPod than try updateing/restoring again:
Reset iPod touch: Press and hold the On/Off Sleep/Wake button and the Home
button at the same time for at least ten seconds, until the Apple logo appears.
See if placing the iPod in recovery mode will allow the restore to compete.
If that does not work, see if placing it is DFU mode will.
The article listed at the bottom of my post also says this:
This device is not eligible for the requested build: Also sometimes displayed as an error 3194. If you receive this error, update to the latest version of iTunes. If you do have the latest version of iTunes, this can occur when you attempt to restore using an older .ipsw file. Try restoring in a new user to ensure that iTunes downloads a new IPSW. Downgrading to a previous version of iOS is not supported.
If you iPod is an 8GB model it is a 2G.