How do I reset my ipod touch so none of my info is on it but I still have the $20 app upgrade installed?
You first need to do the restore. I don't remember if that will actually restore the $20 app upgrade though. Regardless, you will need to copy the app upgrade file to a cd and give that to the person you are selling it to, and have him/her put it in the same directory before they connect their ipod. Other wise, if they have to do a recovery, unless they have this file, the upgrade will be lost.
Here is the path:
~user/Library/iTunes/Mobile Applications/iPod touch App Pack 4A93.ipa
The file has DRM, so unless you deciede to give them your itunes account, this would not work. they would have to buy it for themselves, or jailbreak it.