Using iCloud with my iPod touch

I can't update the operating system on my iPod touch so that I can use iCloud.  It appears to keep downloading the new version to iTunes on my desktop computer but never seems to transfer to iPod.  Can anyone help with that?

I have iTunes version 10.5.2.11.  Everytime I plug my iPod in, a message pops up in iTunes telling me that "A new iPod software version (5.0.1) is available for the iPod....  I select "Download and Update"  (I've tried choosing "Download" only also).  I wait and wait while it downloads (according to the menu on the left side of the iTunes window.  Then nothing.  The file disappears from the left side of the iTunes screen and its like I never did anything.  It happens EVERY time I plug in the iPod.  And I've repeated this numerous times.  Help, please.

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