If you're feeling fresh and this tutorial helped you, please click the above google ad to help cover server costs, we'd greatly appreciate it.

Note: This tutorial was compiled from 'matsuzaka2004' who posted the youtube video http://www.youtube.com/watch?v=zdMIPors1iU.
I have nothing to do with the creation of the software illustrated in this tutorial, all credit goes to the Dev Team, Chronic Dev Team, and everyone else involved. This is simply a quick detailed tutorial on how to use it for people who don't like sitting through videos.
Updated: October 10th, 2009
UPDATED: For the users having problems with the manual jailbreak HERE on the ipodtouchfans.com forum, use this tutorial instead.
No copying, unzipping, renaming has to be done. QuickFreedom makes it simple. This installs BOTH Cydia and Installer. It works flawlessly on XP and Vista 32-bit, I have only read it also works with Vista 64-bit (I haven't tested yet).

iPod Touch 2nd Generation Untethered Jailbreak Tutorial
Using QuickFreedom 1.1.0
Firmware 2.2.1
This was done on a PC running Windows Vista 32-bit.

1.) First off, download QuickFreedom HERE (This is the latest 1.2.0 version of QuickFreedom, the updated version may be different from the pictures below)
This is the beginning to Jailbreak your 2nd generation Ipod Touch (it's the only software you need for this Jailbreak)

2.) Install QuickFreedom.exe

3.) Open QuickFreedom



4.) If you do not see a green and white checkmark next to 'LIBUSB - Installed', click the 'Install LIBUSB' button.
During this installation all your devices that use USB ports will go crazy, this is normal. Just wait until it's finished. You can uninstall LIBUSB after the jailbreak is finished.

5.) After you see a green and white checkmark next to LIBUSB and Original 2.2.1 Firmware, click Next.
If you still do not see a green and white checkmark next to 'LIBUSB - Installed' after you have installed it, click Main Menu and then click Jailbreak, this should update the form and show a green and white checkmark.

6.) Make sure Installer is checked, if you want a custom boot logo, check 'Use Custom Boot Logo' and click 'Change'.
Choose the image that best suits you and click OK.

  

7.) After step 6, click 'Create Firmware'. This takes roughly 5-10 minutes. After it is finished, it will be saved to your desktop as 'Custom Firmware' and notify you via a message box. Click Next when this happens.

8.) After clicking next, you're ready to pre-jailbreak it. Place your iPod Touch in DFU mode. It doesn't matter if the iPod is on or off.
To do this, hold the Power and Home buttons down for 10 seconds.
After 10 seconds, release the Power button and continue holding the Home button for 8 more seconds until you hear your computer beep.

9.) After you're in DFU mode, the screen will turn black on your ipod and QuickFreedom will notify you that your iPod is in DFU mode.
Follow the instruction and click Start Pre-Jailbreak.



10.) Your iPod touch screen will turn white as it's preparing for a Jailbreak. After this is finished, iTunes should be up and visible.
Hold SHIFT and click Restore (in iTunes), this allows you to choose which firmware you want to install. We'll be using the Custom Firmware.ISWF that we created in step 7 (located on your desktop).
iTunes will extract the ISPW firmware file and install as if you were doing just a normal Restore.

After the firmware installation is finished...



You should now have Cydia and Installer on your 2nd Generation iPod Touch. This was done on Windows Vista 32-bit and ran flawlessly the first time around.
Found out about this jailbreak through http://www.ipodtouchfans.com/forums/showthread.php?t=155816.

You can now uninstall QuickFreedom and LIBUSB from your computer.

Of course, any questions, you can find me in the thread of the forum linked above.