Update to ISO 4.3
Connect to iTunes on the computer you usually Sync with and “ Check for Updates “...
If an Update Appears Install it... if not... you are up to date for your particular Device...
See the Using iTunes Section Here...
I suspect you have a 2G iPod. Those can only go to iOS 4.2.1.You could also have a 1G ipd, thos canonly go to 3.1.3
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.