Cannot Upgrade iPod Touch to 4.0

Hi there,
I just got a 2nd Gen iPod Touch (2.2.1) and I've been wanting to get some new Apps from the Store but they all require iPhone 3.0 or 4.0 Software Updates. I went on Apple's site for the update tutorial (iTunes>Your device>Check for Update) but I keep getting a pop-up message telling me my iPod Touch is completely up to date.
I know that this update is supposed to work on my Gen, but it simply isn't. Does anyone here have the same issue and does someone know how to fix my problem? I'd really like to get more apps.

I really appreciate all of your help guys, but unfortunately I still can't do a software update -- even after having iTunes 10.1 and restoring my iPod Touch. I'm thinking my last resort is to just go to the Apple Store and see what the problem is. Otherwise, I might have to self this one back to my friend

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