I have the exact same problem. I tried hundreds and hundreds of times to go into DFU mode with absolutely no luck. According to GreenPois0n's instructions, I should press the Power button while the device is in standby. I even saw a YouTube video starting from standby to DFU.
According to Redsn0w, I should poweroff the device completely, then press power, then Home, and release power while holding home. I tried under Windows 7 Ultimate x64 edition, with and without iTunes open.
It really seems that my iPod Touch 3G has a flaw preventing it from entering into DFU. I am worried it would work with an older iPod Touch or a newer one, but NOT this particular 32Gb variant of the 3G. Or it may work better under Windows XP, or with another computer? I have a dual-boot system with Windows 7 and Linux, not Windows XP and absolutely not Mac OS X.
I am very disappointed with this iPod Touch: file transer is hard, if not almost impossible, with a Linux PC, it forced me to convert a large bunch of Ogg Vorbis-encoded audio files to MP3 (with loss of quality of course), the device itself is unresponsive (it often requires two or three taps to activate a command), and the battery lasts THREE HOURS, not less, unless I keep it in standby mode and only listen to music with it! No apps, no wi-fi, otherwise battery is totally drained. I did not pay for AppleCare, so I am stuck with that. Moreover, most applications are NOT free. Free ones are limited or simply do nothing (E.g., Mirror, Flashlight). If at least this device could show itself as USB Mass Storage, it could at least serve as a big USB key. No go either!
I was hoping that I could install more useful apps on it after Jailbreak and iDroid could eventually be mature enough to replace iOS. As I ready, Jailbreak is the first step toward the iDroid way.
But I read and heard that iDroid is for iPhone only, so it costs 70$ per month to get it although it should be free and open source in principle.