It let me try- I chose not to, however.
So I'd assume yes.
Actually, I'm more curious for an update of a hacked 1.1.2 iPod touch to 1.1.3. I'd like to see if (I believe it will but still) the new update wipes clean the hacked apps or if it will just ignore it. I don't care much for the buying the apps but the new ipod video chapters and lyrics are pretty cool. Also the webclips are still making me think about updating ;_;
So i downgraded my i.i.2 jailbroken ipod touch to 1.1.3 and YES it does wipe out installer as well as all the apps.