Kyle's how-to is perfect, if running 1.1.2 or 1.1.3. I myself am running 1.1.1 - a bit more stable, and the apps correct the issues that make you upgrade in the first place. But you can save time if you're running a later version.
Here's the instructions I found:
Here's how to revert (if you wish, like I say, not necessary) to 1.1.1:
http://appldnld.apple.com.edgesuite.net/content.info.apple.com/iPod/SBML/osx/bundles/061-3932.20070927.p23dD/iPod1,1_1.1.1_3A110a_Restore.ipsw
That's the 1.1.1 firmware. To get it onto the iPod you need to hold shift and click "Restore" in iTunes.
Then just point the iPod's Safari browser to
http://www.jailbreakme.com and click to install the AppSnap link. It uses this exploit in mobile Safari and installs a program called Installer, which, duh, installs applications.
As for applications, you will need to add sources in the Installer app itself (you'll see the tab to do it) to find all the really cool stuff - and damn near anything you might want, they have.
As for sources, this is the whole list:
http://www.ipodtouchfans.com/wiki/index.php?title=IPod_touch_Installer_source_list
I would particularly recommend BigBoss' repository.
Most of the good sources should be available through Installer. They should be under the Sources tab.
From BigBoss' you want to download BossTool and move the applications so you lose the 300mb limit.
Use this source for iPhone applications:
ipodtouchmaster.com/files/repo.xml
Keep in mind that the Touch cannot have more than 83 (I think) applications on it. Any after that and it gets a little endlessly spinning wheel.
Direct copy there. The 83 applications thing we found out when the 1 guy I mentioned screwed up. I don't have 1/4 that, and if you DO go berserk and install that many and brick it, you can just reset and start over.
And iPhone apps will work on the Touch; it's just that the Touch cannot access the internet anywhere like the iPhone can. Yeah, it's pretty frickin' sweet.
