Based on jfb392's Guide

01) Create a c:\redsn0w\ folder.
01) Extract XPwn to c:\redsn0w\xpwn\
02) Extract rslite to c:\redsn0w\rslite\
03) Extract iRecovery to c:\redsn0w\irecovery\
04) Extract iPod2,1_2.1.1_5F138_Restore.ipsw\Firmware\dfu\iBSS.n72ap.RELEASE.dfu to c:\redsn0w\irecovery\ and rename "ibss211.dfu"
05) Rename "iPod2,1_2.2.1_5H11a_Restore.ipsw" to "orig221.ipsw" and copy to c:\redsn0w\xpwn\
06) Delete "FirmwareBundles" from c:\redsn0w\xpwn\
07) Copy "FirmwareBundles" from c:\redsn0w\rslite\ to c:\redsn0w\xpwn\
08) Open a cmd prompt to c:\redsn0w\xpwn\ and type: ipsw orig221.ipsw pwnd221.ipsw -s 700 bundles\Cydia.tar
09) Extract pwnd221.ipsw\Firmware\dfu\iBSS.n72ap.RELEASE.dfu to c:\redsn0w\irecovery\ and rename "ibss221.dfu"
10) Extract pwnd221.ipsw\Firmware\all_flash\all_flash.n72ap.production\iBoot.n72ap.RELEASE.img3 to c:\redsn0w\irecovery\ and rename "iboot221.img3"
11) Open Device Manager, expand the USB section, and boot your Touch into DFU mode so that it shows up in Device Manager as being in DFU mode.
12) Extract everything from libusb-win32-device-bin-0.1.12.1.tar.gz\bin\ to c:\redsn0w\libusb\
13) Create c:\redsn0w\libusb\ipt2g-dfu\
13) Create c:\redsn0w\libusb\ipt2g-iboot\
14) Run c:\redsn0w\libusb\inf-wizard.exe, select your DFU mode Touch, and save your inf file to c:\redsn0w\libusb\ipt2g-dfu\ipt2g-dfu.inf
15) Copy the files from c:\redsn0w\libusb\ to c:\redsn0w\libusb\ipt2g-dfu\
16) In Device Manager, update the driver for your DFU Mode Touch, Browse for the new driver, Let Me Pick, Have Disk, choose the inf file in c:\redsn0w\libusb\ipt2g-dfu\
17) Open a cmd prompt to c:\redsn0w\irecovery\ and type: iRecovery -f iBSS211.dfu
18) Unplug the Touch and replug it after 10 seconds or so, the screen should turn white, and Device Manager should show it's now in iBoot Recovery Mode instead of DFU Recovery Mode.
19) Repeat steps 14-16, using "ipt2g-iboot" instead of "ipt2g-dfu"
20) In the cmd prompt already open to c:\redsn0w\irecovery\ type each of these commands:

iRecovery -s
arm7_stop
mw 0x9000000 0xe59f3014
mw 0x9000004 0xe3a02a02
mw 0x9000008 0xe1c320b0
mw 0x900000c 0xe3e02000
mw 0x9000010 0xe2833c9d
mw 0x9000014 0xe58326c0
mw 0x9000018 0xeafffffe
mw 0x900001c 0x2200f300
arm7_go
arm7_stop
/exit

21) In Device Manager, change your iboot driver back tot he original Apple driver.
22) Launch iTunes, select your iPod, hold Shift and click the Restore button, and select 
    c:\redsn0w\xpwn\pwnd221.ipsw
23) After restoring, close iTunes, and your Touch will probably have a blank black screen, and 
    Windows may say it's an Unknown Device, THIS IS FINE!
24) You need to boot back into DFU Mode, which can take some tricky timing as you're doing it blind, 
    you'll know you have it when Device Manager shows it.
    
    Note:  I was really worried at this point, as Device Manager quit showing anything, and was 
           refreshing constantly as if the device was constantly cycling, but it was fine.  It was 
           just hard to get into DFU Mode again.  Just hold Power+Home to turn it off when Device 
           Manager stops blinking, let go and repress and hold Power while still holding Home, after 
           a few seconds, let go of Power.  Again, you'll know you have it when Device Manager shows 
           it as the DFU Mode driver.
           
25) From a cmd prompt in c:\redsn0w\irecovery\ type: iRecovery -f iBSS211.dfu
26) Unplug and replug the Touch, change the driver back to your custom iboot+libusb driver.
27) From a cmd prompt in c:\redsn0w\irecovery\ run the following:

    iRecovery -s
    arm7_stop
    mw 0x9000000 0xe59f3014
    mw 0x9000004 0xe3a02a02
    mw 0x9000008 0xe1c320b0
    mw 0x900000c 0xe3e02000
    mw 0x9000010 0xe2833c9d
    mw 0x9000014 0xe58326c0
    mw 0x9000018 0xeafffffe
    mw 0x900001c 0x2200f300
    arm7_go
    arm7_stop
    /exit
    iRecovery -f iBSS221.dfu
    iRecovery -s
    go
    /exit
    iRecovery -f iBoot221.img3
    iRecovery -s
    go
    /exit

28) SUCCESS!  My iPod booted normally, showed up in Device Manager as "Apple iPod" and showed the 
    cable and iTunes symbol on the screen.  Launched iTunes, and it had me set it up, I choose set 
    it up new, and there was Cydia.

29) Repeat steps 25-27 on subsequent reboots.

30) Enjoy your tethered jailbreak.