It depends on what "kind" of 3rd gen it is. If it's the 8GB, then it's the same hardware as the 2nd gen meaning it can only be upgraded to an early version of 4.0, and quite a few features will be missing (multitasking, home screen wallpapers, etc). If you "true" iOS 4.0, then upgrading to the 4th gen is the only option in that case. If it's any other capacity 3rd ten (32GB or 64GB), then there's no reason you can't download the latest iTunes and update that way.