Before following these instructions you should have already restored your iPod touch to 1.1.4 using iTunes. You should have the iPod touch connected to your dock/computer and iTunes should have detected the iPhone after restore at least one once!
For your convenience this tutorial is available in video format also.
Download iLiberty+ 1.2 from here, or here to your desktop.
Double click the downloaded file (iLibertyX.dmg) on your desktop.
Double click the iLiberty icon to launch the program. NOTE***: You could also drag this icon into your Applications folder to permanently install it.
You will be warned that you downloaded iLiberty+ from the internet. Click the Open button.
iLiberty+ will open onto the standard tab. Notice the jailbreak checkbox is already checked.
Click to select the Payloads tab. From here you can select additional payloads to install while jailbreaking. We will leave this alone for now and go back to the Standard tab. Note***: A tutorial on how to download and install payloads will be posted in the near future.
Click the Free My *GB iPod Touch! button to begin.
Once the jailbreak is complete you will see an Enjoy! message. Click the OK button to enjoy your newly jailbroken iPod touch!
THANKS***: A lot of thanks go out to AViegas, George Zhu, Dev Team, and whomever else contributed to this release!