Q: iPod Touch - iOs 2.21

Here a list of what you can upgade to:

Pod Touch 1                               iOS 3.1.3

iPod Touch 2                               iOS 4.2.1

iPod Touch 3                               iOS 5.1.1

iPod Touch 4                               iOS 6.1.x

iPod Touch 5                               iOS 7.0.x

No...it's not a paper weight yet. There are vintage apps out there and I believe you can still get on iTunes. Then again Christmas is coming. You could check with Apple and see if you can do a buy back or upgrade to a newer model. Hope this helps, Good luck.

Error -1

Attempt to restore your iOS device two more times. If the issue is still unresolved, the device may need service.

The "device may need service" means a hardware problem. In that case make an appointment at the Genius Bar of an Apple store.

Apple Retail Store - Genius Bar

Also see:

-1 error

-1 error too

If you have 1G iPod those can only go as high as iOS 3.1.3 and that is a paid update that you get here

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

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

Identifying iPod models