updating.... fail?

Hello,

I currently own an iPod Touch 1st gen 8 gig. I recently downloaded an app using my itunes via computer. I downloaded, it, and was ready to go sync my iPod. I then plugged in my iPod and it said that i need to update to 3.1.3 the newest verson. I said no and continued on and untill it updated everything including app and it notified me by saying this app requires 3.1.3. I shrug and download it. i let it finish and after the installation, my ipod freezes and shuts down. It gets ejected from my itunes aswell. I and restart my iPod. When the icon comes up it doesnt say _______'s iPod it simply says iPod. I then get this message
http://i222.photobucket.com/albums/dd47/CamQuartr/Picture7-20.png

I click restore, and it wont let me install the new software again, ejecting my iPod and bringing it back to where i was right before.

im pretty sure that its because my iPod is old and doesnt support the OS, but i thought maybe that it could wait a few months untill 4th gen comes out.

help on restoring?