Q: I have a very old version of iso and it will not let me update.

Maybe that's the latest version that your hardware will support.  How old is your iPod Touch?

I supect y have a 1G (first generation) iPod

A 1G iPod can go to iOS 2.2 via iTunes and iOS 3.1.3 via

Purchasing iOS 3.1 Software Update for iPod touch (1st generation)       

https://buy.itunes.apple.com/WebObjects/MZFinance.woa/wa/touchLegacyLandingPage

A 2G to 4.2.1. Requires iTunes version 10.X. If a Mac it requires OSX 10.5.8 or later. With OSX 10.4.11 you can only go to iTunes 9.X which gets you as high as iOS 4.1

A 3G to 5.1.1  Requires iTunes version 10.5 or later

A 4G to 6  Requires iTunes version 10.7 or later. For a Mac, that requires a Mac with OSX 10.6.8 or later

Identifying iPod models

To find apps for your old iPod

VintApps 3.1.3 for iPhone, iPod touch, and iPad on the iTunes App Store

apps for ios 4.2.1: Apple Support Communities

Finding iOS 4.2.1 Apps Compatible with Older Devices - Apple Club

HT4972 Touch Game 4.2.1 Apps: Apple Support Communities

apps for 4.2.1 (also works for 3.1.3)

Tip - Finding 4.2.1 apps that work on an...: Apple Support Communities

1. 4.2.1 iPod 2nd generation unable to use any...: Apple Support Communities