upgrade IOS4 to IOS 5

Update it from iTunes on a computer as described at the bottom of this article; devices running an iOS version prior to 5.0 can't be updated straight from the device. It will be updated to the newest iOS release supported by the device’s hardware.

The maximum iOS version for the iPhone 3G and second generation iPod touch is 4.2.1.

The maximum iOS version for the third generation iPod touch and original iPad is 5.1.1.

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See:

iOS 4: Updating your device to iOS 5 or later

If your iPod does not have a camera it will go to iOS 5.1.1 and yo need iTunes 10.5 or later on the computer.If it has camera it will go to iOS 6.1.3 and yo need iTunes 10.7 or later on the computer.