Alternatively, if there is really nothing you want in the current library, simply delete it. If the library is in the normal location of <User's Music> iTunes will silently create a new empty library for you, otherwise it will prompt you to choose or create one.
What exactly do you mean by "a single file folder"? By default iTunes will organize the files it controls into nested subfolders, e.g. music as <Media Folder>\Music\<Artist>\<Album>\## <Name>.<Ext>. You can turn off the option to organzie content and add media in from any structure you like, but iTunes will lose track of anything you later move by hand, and anything it rips or downloads from the store will still go into the standard layout.
Note also that Apple devices such as your iPod touch generally expect to be synced from a single library. If you swtich the library you may lose data from the device. See Recover your iTunes library from your iPod or iOS device for tips.