iPodTouch: Applications Ungrouping Themselves in 0S 4.1

Device: iPod Touch (65gb)
System: OS 4.1

Well, yesterday when I was at a computer store I looked at my iPod Touch (65gb) and it had "all" the applications (700) in groups. Then, it said update so i started to do that and I got a message that said (as I was updating) "I am sorry but that application is no longer available." I got that for multiple items which was really strange. I kept getting that message over the next ten minutes...I just found it strange.

When I got home I noticed that 4.2 was available but it wouldn't let me download it to my (non-Intel) G5 and wanted the new 11.5 iTunes which couldn't load on my machine. Does Apple really want me to buy a new system? I don't have money to do that right now. Is that why I am having all the issues?

Problem: My main concern is that all my (700) applications are "no longer grouped." Do you know how long it took me to do that and name each section. I am pissed!

Question: Any suggestions? I have tried to regroup (two sections) and it seemed ok but when I opened up my iPod Touch again (after several minutes) those applications were "ungrouped again." Does this have something to do with the new version that is "not" on my system?

Concern: This has never happened to me in a year! I cannot "keep" anything grouped now and I keep getting the "this application is no longer available in the application store."

Any ideas?

NorthBay