Make sure you have iTunes 7.7 installed.
Download iPod Touch Firmware 2.0 Build Version 5A347 and WinPwn 220.127.116.11 for Windows.
Uninstall the old version of WinPwn if you have it and then install 18.104.22.168. Open it.
Browse .ipsw and select the firmware file that you just downloaded.
Go to IPSW Builder. Select 'Install Cydia' only. Choose custom images if you wish to (recommended). Ignore Custom Playload. Click on 'Build .ipsw' tab in the southwest corner of the window. After your custom firmware (.ipsw) file is built, WinPwn will notify you. Select 'OK'.
Then go to 'iPwner'. Select your custom firmware file and click 'Open'. After a few moments, you will receive a message saying 'Your iTunes has been Pwned!' Select 'OK' and close WinPwn.
Put your iPod Touch in DFU mode and connect it to your PC. iTunes will recognise it as an iPod in recovery mode. Click on the Restore button and don't leave it. At the same time, keep pressing the Shift Key. A browser will open up. Find and select the custom .ipsw file that you just built. Your iTouch will restore and restart with 2.0 jailbroken.
Your iTouch will contain 2.o and all its features (including the App Store), the January Software Upgrade and the Cydia Installer.
Note: This is to be done entirely at your own risk.