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Get PuTTy, then make sure you are connected to WiFi via your iPod Touch. Once there, use PuTTY to connect to SSH (not FTP or anything else, this is important) and type in for the server your WiFi address IP. (Can be found in Settings > Wifi, then click the blue arrow next to the one you're connected to.)
For username and password, they are root for username, and alpine for password. It may take a few tries to connect but should go smoothly.
hey Copacetic, can you change your SSH password now? I remember at some point it mucked stuff up because of the whole root/mobile thing, but do you know of an updated answer?
They haven't given any information on the ability to change it, but they said it was a problem with that specific version and that has been updated three or four times since.
Sorry for the bump, but I have something that may be of use to some people. Your iPhone\iPod Touch's IP is broadcasted over Bonjour (Zeroconf) with the name of your device.local. It saves me from having to look up the IP all the time.