How to put an ipod touch into restore mode: Plug it into your computer, and turn on iTunes, then: hold the power and home buttons down until it resets. Release the power button, but keep the home button held until it enters recovery mode.
How to restore to a specific version of the firmware that you have downloaded to your computer: Use iTunes but instead of just clicking the "Restore" button, you hold the shift key down and then clicking the "Restore" button. This gives you a file selecton dialog that you can select a specific firmware file on your local hard drive. NOTE: You can also "upgrade" to a specific firmware version in the same way, but shift-clicking on the "Upgrade" button. At some points the difference between a Restore and an Upgrade is very important! (e.g. after jailbreaking a 1.1.1 and running OktoPrep, you should UPGRADE to 1.1.2, not restore!)
VERY IMPORTANT: Turn off "Auto-Lock" in the General->Auto Lock control panel!!! You will have to do this every time you upgrade/restore to a new firmware. Nothing messes up a firmware upgrade like the ipod locking halfway through it and turning off!
Here are a few guides that I found to be the most useful for jailbreaking/hacking the ipod Touch:
You can use the ipodtouchmaster over the air upgrade from 1.1.2 to 1.1.3 or 1.1.4, but I do not recommend it, as this breaks Apples "signed content" system, and keeps you from installing signed apple content (such as movies/songs you paid for in the itunes store).
Basically, you do a 1.1.1 to 1.1.2 jailbreak, then add
"http://ipodtouchmaster.com/files/repo.xml" to your sources and use the 1.1.2 to 1.1.4 upgrade path.
However, what I recommend is:
1. Downgrade your existing ipod to firmware version 1.1.1. To do this, plug in your ipod and hold the power and home buttons down until the ipod touch turns off, then release the power button but keep holding the home button down. This will put the ipod into recovery mode.
You can install the 1.1.1 firmware using the iTunes software, just download the 1.1.1 firmware from the web, and then hold the shift key when clicking the restore button to get a file selection dialog where you select the 1.1.1 firmware.
2. Set up your ipod to use wifi, and use the safari web browser to navigate to jailbreakme.com and install AppSnap to jailbreak your 1.1.1 ipod. (This claims to automatically runs an OktoPrep that prepares your ipod for the 1.1.2 firmware jailbreak, but it didn't work for me.) To fix this, add this source to your installer: http://hackthatphone.com/1.xml and then look for the oktoprep application in the All Programs category and install it manually.
3. Install the 1.1.2 firmware using iTunes. (Don't shift-click on restore, as this gets rid of the OktoPrep fixes! Instead, shift-click on the update button.)
4. Download the 1.1.2-jailbrake java software and run it.
5. Use the official 1.1.3 installer (from inside of the installer application on your ipod touch) to upgrade to 1.1.3.
This guide is the closest to my experience:
After you upgrade to 1.1.3 (jailbroken) with the Dev Team's official method, to get the apple applications and wiggle you need to add the BSD Subsystem and then add another source:
(Sources -> Edit -> Add -> http://ijailbreak.com/repo.plist), this adds a category called “iJailBreakMobile”. Select the iPod touch Software Upgrade package and install it.
After you install it, you'll have to run the iJailBreak application, and may have to log in with the default password (root/alpine) or whatever you have set if you changed it. (I had to log in via SSH to apply the software upgrade, for some reason the terminal wasn't working.)
Note that the 1.1.3 password (passwd) program is broken, and you will need to apply this fix if you want to be able to change the password. If you changed the password before applying the fix, your springboard (application launcher) will reboot every 5 seconds. The best way to fix this is to re-install ((over SSH, you did install SSH right?) the orginal /etc/master.passwd and /etc/passwd files. (Note that that is /etc/passwd, not the /usr/bin/passwd binary file that the fix replaces.)
If you start to run out of space for Applications, you can always move the /Applications folder to /var/private/Applications and then create a symlink from the /Applications folder to it. This moves the Applications over to the partition that stores all of your music/videos (which is much bigger) and allows you to install big things like dictionaries without worrying about space issues. Directions are here. (I found that I had do copy the applications directory over to /private/var instead of move it.)