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You can't update the first gen iPod touch and the second gen iPod touch to iOS 5. The maximum firmware update for the first gen iPod touch is iOS 3.1.3. You're welcome ;)
 
Did you ever figure out how to update it to at least 4.0? I read you can do this with whited00r, but I don't know how to bypass the restore error 1604, for which I read that you need redsn0w, but which won't work for 1G iTouch.
 
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