Q: I cant find any software update button, where is it? its not in my general options list

The option to update from the ipod itself is only available if you are running ios 5 or later.

Are you?

Otherwise, update via itunes on your computer.

To update

The Settings>General>Software Update comes with iOS 5 and later.

Connect the iPod to your computer and update via iTunes as far as your iPod model allows

iOS: How to update your iPhone, iPad, or iPod touch

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.

A 3G to 5.1.1  Requires iTunes version 10.5 or later

A 4G to 6.1.3  Requires iTunes version 10.7 or later. For a Mac, that requires a Mac with OSX 10.6.8 or later

A 5G to iS 7. Requires iTunes 11.1 or later if you update via iTunes

Identifying iPod models