The only way to unlock the full potential of your iPod touch 2G and install custom applications, ringtones, etc, is to jailbreak iPod touch 2G. Following are the instructions about how to jailbreak iPod touch 2G with RedSn0w.

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How to Jailbreak iPod touch 2G?
Nowadays there is a lot of talk and rumors going around
about how to jailbreak iPod touch 2G. If you own an iPod
touch 2G, you have probably heard about some methods of
jailbreaking your devices. Hundreds of thousands of iPod
touch owners are doing it. Just what is iPod touch 2G
jailbreak? What exactly does it do and why would you need
jailbreak iPod touch 2G?
The iPod touch 2G is a beautiful device, but unfortunately
Apple restricted a lot of it's potential by locking the
firmware. The only way to unlock the full potential of your
iPod touch 2G and install custom applications, ringtones, etc, is to "jailbreak" the
iPod touch 2G, whereby you remove Apple's firmware restrictions.(If you want to put
DVD and videos on your iPod, free download DVD to iPod Converter Suite.)
Redsn0w by DevTeam allows you to jailbreak iPod touch 2G, to get complete control
over it. We are using RedSn0w tool for jailbreaking iPod touch 2G. Following are the
instructions to jailbreak iPod touch 2G with RedSn0w.
Tools Requirements:
* Redsn0w
(For Windows – Download here)
(For Mac OS – Download here)
Step by Step Guide
Step 1: Create a folder on desktop and name it whatever you want. Now put all your
downloaded files in the folder. Connect your iPod touch 2G to the computer and launch
RedSn0w from the folder.
Step 2: In the new Window click on the browse button to navigate to the folder on your
desktop and select the firmware.
Step 3: When asked if you have an iPod touch 2G with a serial number that begins with MC.
Click the appropriate button.

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Step 4: Once the firmware has been verified click the Next button to continue.
Step 5: In next Window check the Install Cydia option. You can select / unselect more
advanced options like verbose boot, multitasking, wallpaper etc. Once you selected all
required options click on next button.
If you do not need multitasking we would recommend deselecting it as it could make your
iPod 2G run very slow.
Step 6: Now turn off your iPod touch 2G but make sure it is still plugged in to USB port. If
you satisfies this term then click next to proceed the next step is to put your iPod touch 2G in
DFU mode.

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Step 7 : To put your iPod touch 2G in to DFU mode follow the onscreen instructions as
follows Hold the Power button for 3 seconds, Hold the Home and Power buttons for 10
seconds, then release the Power button and continuing holding the Home button until your
iPod touch 2G is in DFU mode.
Step 8: That’s it after 5 to 8 minute of process you will get your hands on a Jailbreaked iPod
touch 2G.

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Related Resources:
How to Jailbreak iPod touch OS 3.1.2?
How to free download YouTube video?