Q: how do i update my iTouch from iso 2.2.1 to the latest iso version?

If you have the 2nd generation you can update to 4.2.1. Connect your iPod with iTunes and let it search for an Update.

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 1o or higher. If a Mac it requires OSX 10.5.8 or later.

Identifying iPod models

I thnk you may have the original (1G) iPod, That is the only one wihter a internal speaker and not voumume buttons on the upper left edge