This has been spoken about alot in the ipod touch firmware release thread. Everyone including me who updated early to the 2.0 firmware found that it was impossible with itunes or zipphone to go back to 1.1.4 your stuck with 2.0 i am afraid.
Actually you aren't stuck..I'll copy and paste the instructions I wrote up on another site here...
I think the biggest problem people are having is putting the iPod into DFU mode.
- If your iPod is already in restore mode because you've tried to put it in DFU mode via various utilities on the web you need to reinstall the 2.0 firmware using iTunes 7.7 before you continue. YOU MUST HAVE A FUNCTIONAL iPOD to CONTINUE! HAVING YOUR iPOD IN RESTORE MODE WILL NOT WORK!
Prep. for Downgrade
- First thing you will want to do is cut [move] your iTunes folder in the "My Music" folder into a different directory for backup purposes, this will prevent a library error that prevents you from running iTunes 7.5.
- Download the respective firmware you want to downgrade to:
Firmware 1.1.4
Firmware 1.1.3
Firmware 1.1.2
Firmware 1.1.1
- Download iTunes 7.5 setup file:
iTunes 7.5
Uninstall Process
- Unhook your iPod if its hooked up already
- Go to Add/Remove programs and remove iTunes, DO NOT REMOVE other components of iTunes, specifically the Apple Mobile Device Support.
- When asked to reboot, do so.
Install Process
- Launch the iTunes 7.5 setup file and install iTunes in the same directory as 7.7 was
DFU Mode - Enabling
[Note: Do NOT use 3rd party software to try to enable DFU, it won't work with 2.0]
- Hook up your iPod now
- Run iTunes 7.5, ignore the message that says "This iPod requires iTunes 7.7 to run." click ok to the message.
- Now HOLD the Power + Home button until the iPod Touch turns off
- Once the device turns off immediately release the power button and continue to hold the home button
- Your SCREEN SHOULD BE BLANK! Continue to hold the home button for about 15 seconds until iTunes 7.5 picks it up as being in restore mode. [If you've got the restore screen on your iPod, you need to start over at the beginning of this section]
Firmware Upgrade
- Now that iTunes 7.5 has detected your iPod, click the iPod Touch to show the summary screen
- Hold Shft + Click Restore, now select the firmware version you wish to downgrade
- click ok the recovery process should start and be successful this time!
[if you receive error 20, start over from the beginning and make sure you are following these steps exactly]
Reinstall iTunes 7.7
Now you can reinstall iTunes 7.7, and once that is done you can copy the iTunes folder you backed up earlier back into the My Music folder..overwrite everything and your library should be restored under iTunes 7.7.