"I set restrictions on my daughter's iPod and forgot the password. As far as I know, the only way to reset it is by doing a factory restore without a backup from my Mac."
"If I do a factory restore on my iPod Touch 2G I am afraid many of my apps, even paid ones will not work anymore since they have since been upgraded and my iTunes does not contain the old versions anymore."
Why do you not have the older version any longer?
Delete the incompatible apps from your computer. Transfer the apps that are working on your iphone to your computer. File>devices>Transfer Purchases
Before you restore the iPod make sure that your iTunes library has the version of apps that are presently installed on your iPod. As you know, many apps have been update and the update apps are not compatible with the 2G iPod. I would do that by deleting the apps from your iTunes library and then transfer them to iTunes. See:
In iTunes 11 use Control+B to show the Menu bar then go to iTunes>File>Devices>Transfer Purchases
Because the hardware on the 2G dopes not support a higher iOS
Hello all, I too am facing the same problem..! I had a back up of most of the apps, but the old setup apps cant be installed still. Can anyone help in this matter..! Why can't apple provide an update iOS 4.3 for iPod touch 2nd gen ...???