The cleanest way to jailbreak, in my opinion, is to get things back to "stock" first.
First, disable ALL syncing. ALL OF IT. and ten do a final Sync. Your iPod Touch should have no music, photos, etc. on it.
Next, I downloaded the v1.1.4 firmware file and did a <shift>+Restore. When prompted, I selected iTunes to treat the iPod as new. The restore completed, and I was nicely at v1.1.4 with a completely clean iPod Touch including the "January Update" applications I purchased.
Next, I downloaded ZiPhone-Win-v2.5 and ran it, selecting nothing more than the "Jailbreak" button. After a very short while, the Jailbreak was complete, and I had an Installer icon.
Since then, I've re-installed a number of apps, and re-enabled Syncing. I do not have any purchased iTines music, only my own MP3 rips, so i cannot say if they would play or not, but so far, everything works as the "stock" version worked, just with enhancements.
My suggestion is to get it to "stock" as bet as you can before Jaibreaking, then do the Jailbreak.