Do you mean you have iOS 4.2.1?
If you have a 3G iPod you can go to iOS 5.1.1 . See:
You need iTunes version 10.5 or later on the computer. If you have a Mac, that rrequires OSX 10.5.8 or later.
If you have iOS 4.2.1 then I suspect you have a 2G iPod. Those can only go to iOS 4.2.1. Are you sure you really do not have a 2G iPod? Those can only go to 4.2.1
iPod touch (3rd generation)
iPod touch (3rd generation) features a 3.5-inch (diagonal) widescreen multi-touch display and 32 GB or 64 GB flash drive. You can browse the web with Safari and watch YouTube videos with Wi-Fi. You can also search, preview, and buy songs from the iTunes Wi-Fi Music Store on iPod touch.
The iPod touch (3rd generation) can be distinguished from iPod touch (2nd generation) by looking at the back of the device. In the text below the engraving, look for the model number. iPod touch (2nd generation) is model A1288, and iPod touch (3rd generation) is model A1318.
Regarding Ford Sync, what model iPod and iOSs does Ford say is needed?
I do have the 3rd generation 32 gb touch..I am in process of updating the software. I did finally find the updates. I had a nano that I was using but for some reason sync won't recognize it any long for voice commands. I am having the dealership update the sync software also...I had heard that the touch iPods don't work with sync. In the ford manual it don't list anything specific