So I recently opened up my iPod Touch, and much to my suprise and dismay, I discovered that even though I had bought the iPod AFTER the 2.0 firmware came out, I still had to pay Apple another $10 for the 2.0 firmware. Considering the reason why I decided to open it was to make apps for it, I was frustrated.
And so I set out to find out how to update it for free. I would have paid Apple for it if they had told me before I bought it that I was getting the 1.5 firmware, and that it would cost more to update it to 2.0. But, since at least in my view they violated the truth-in-advertising laws and didn't tell me that, I decided that they didn't deserve my $10...IMHO.
Anyhow, here are some instructions:
Basically, you download the firmware restore file (which will restore your iPod, so kiss your music goodbye unless you have it backed up on your computer). You can either download from RapidShare, which is fast, but reqires you to download three files and use a program to combine them into the firmware, or you can dowload from Uploaded.to, which is SLOW (~14 kbps) but doesn't require you to combine three files together. I used RapidShare and combined the files together.
Once you have your firmware update, go into iTunes, plug in your iPod, let it sync (just to be safe =]), then hold down Shift if you're using a PC or Alt if you're using a Mac and click the restore button. A dialog will pop up asking you where the firmware file is. Point it to the one you downloaded.
Let it do it's thing, and once it's done, you're good to go! You then can update for free to the 2.2 firmware via iTunes, so you're running legit code, if that matters to you.
One note: When I did mine I got an error (1403, IIRC). This means that the firmware is corrupted. Download it again. If you used RapidShare, you can try recombining the files first (which is what I did, and it worked).
Note: I'm aware that this falls into a grey area (probably dark grey...). If you're not cool with it, let me know!