How would Find my iPod work on a locked iPod Touch?
I'm afraid you're completely right. Apple does even make a statement on its website about it: 



However, there are some alternatives.
But since there is no way to come up with a work around on this problem, 3rd party software, like Undercover allows you to store the latest locations of an iDevice. Where Find my iPod touch will only show you the current location (it doesn't show a history of locations I think), Undercover will save its latest location, as they say on their FAQ page:


  What happens if Undercover is launched when a phone is not connected
  to the net? Will it still transmit its location?
  
  If Undercover is launched on an offline device (no 3G or Wi-Fi), its
  location is saved. As soon as the device goes online and Undercover is
  launched again, saved locations will be transmitted.