To answer your question about installing the update.
Connect your touch to iTunes. It'll check to see if you are running the current software. If you are, iTunes will tell you and you won't need to do anything else.
If you do need to upgrade, iTunes will inform you. You can then click on the Upgrade button, pay for it using your iTunes account. The software will then download and install automatically. You shouldn't have to do anything else besides clicking the Upgrade button (and paying for the upgrade).