HOWEVER!!
There IS a way to get iOS 3.1.3 (the last version your iPod Touch can run) to LOOK and to some extent ACT like iOS 5!! Wheeeee!
I just did this for my original iPhone 2G, which is of course long past any warranties or upgrading or contracts. The phone looks GREAT now, and I love having folders on it. It doesn't do all the things iOS 5 does OF COURSE, nor does it run any apps that require more than iOS 3.1.3, and some of the icons ("iCloud," "Newsstand" and "App Store" in particular) are "fake," but it definitely breathed new life into my old phone.
The app you need is called Whited00r 5.1, and it's available from whited00r.com (note those are zero's, not o's in "door"). Be SURE to read the install guide CAREFULLY and follow it FULLY, it's pretty straightforward. Your iPhone does not need to have been previously jailbroken (it handles all that as part of the install). Just have a good look over the whole site and you should be fine.