Im getting the same error screen. Also when i try to update via itunes it wont work saying it failed verification or something. I have restarted my ipod and router. Its connected to wifi and im able to surf the internet and browse the app store so its not disconnected from wifi
Restart the iPod won't solve the problem.
Also, I connected my touch to the PC in order to upgrade through iTunes.
It turned out that won't work as well.
The warning message reads An unknown erroe occurred(3194).