Can I upgrade my 16GB iPod touch to iOS 4.0?

Yes if you really have a 2G iPOd. A 2G can go as high as 4.2.1. Just connect to to a computer with iTunes version 10 and update.

However, since you have 3.1.3 are you sure you really have a 2G iPod? A 1G can only go to 3.1.3. To idenbitfy yours:

Identifying iPod models

The 1G does ot have Bluetooth or an internal speaker. Yu can tell the 1G from the 2G by the shape of the black antena cover on the back.

fafateytey did you notice that the post is over three years old and already marked as solved? What was the purpose of your response?