The most important thing you do with an ipod is what you do AFTER you jailbreak it. This is a guide to things you must do after you Jailbreak it.
First, be sure that you are downgraded to 3.1.3 software. To do this, simply download the 3.1.3 software by clicking here, then put your ipod into restore mode, and on iTunes hold down shift while pressing restore. Select the file you downloaded, and then follow all the instructions. Then jailbreak it using this program.
