What you need to do, is after you get your ipod touch into DFU mode, is to get it into "pre-jailbreak" mode.
This is when your iPod touches screen goes from black (DFU mode) to white (pre-jailbreak).
There are currently no GUI ways of doing this on a mac, so I suggest QuickFreedom for windows. It will create a custom iPod Touch firmware for you (which you should use to restore it to 2.2.1 first, then restore it to the original 2.2.1 version after), and guide you how to put your ipod into DFU mode. It will then do the pre-jailbreak setup for you, and then tell you when you can use itunes to update your ipod.
I only suggest this, because this is how I got my ipod touch downgraded from 3.0, and because nobody else here had mentioned (or at least I didn't see it) the white "pre-jailbreak" screen.
There is a way of doing the pre jailbreak mode with a mac, but you need to use terminal...blah blah blah...i can't seem to find the youtube video I got it from, so I still suggest using QuickFreedom, if you have a windows PC lying around of course.
Well i looked into the Quickfreedom program, it says its for the 2nd Generation Ipod Touch, I have a 1g. But thanks for the suggestion..
EDIT:
I think i'll go ahead and download it and run it, see if it recognizes my ipod
2nd EDIT:
I does recognize my ipod, which is nice. Ofcorse how ever it only works with the 2nd gen firmware.