Are you sure that it's a 3rd generation Touch? Check this page, http://support.apple.com/kb/HT1353 for help in identifying your model.
Be aware that an 8Gb iPod with iOS 4.2.1 is not 3rd generation, It's 2nd and can only go as high as iOS 4.2.1. A 32GB Touch could be either 2nd or 3rd gen, so you need to check. As a start, if you can read the model number etched into the back case of your iPod, is it's A1288, then that's a 2nd gen Touch.