Open your web browser of choice and navigate to http://www.limera1n.com. Click the Download for Windows link at the bottom of the screen.
When prompted save the download to your desktop
Double click the limera1n.exe file from the desktop to launch the application
Click the large make it ra1n button
You iPod will now be placed in recovery mode.
Press both the power and the home buttons.
When Limera1n asks you to, release the power button.
Your phone will now be in DFU mode
As limera1n performs its exploit you will see the image of a lime raindrop on your iPod.
Limera1n will let you know when it is complete.
After you power back on your iPod you will see a new icon on the SpringBoard entitled limera1n. Press it to continue.
Once Limera1n opens select Cydia then press the Install button at the top right of the screen.
Once the Cydia installation has completed you must reboot your iPod.
When your iPod has restarted you can run Cydia. Let it do all the necessary updates.
NOTE*: To remove the limera1n icon from your desktop you can install CyDelete from Cydia then use it to delete the application. Eventually this capability should be present in limera1n itself.
***A big thanks goes everyone who made this jailbreak possible.