Issues with 2nd gen iPod touch
First, you may try to restart it. Hold Power button for that.

Second, if this will not help try restore your iPod.
For this connect it to iTunes, choose Backup from iPod contextual menu and then press Restore. This way you will be able to rectify software problems.

Then you may try to restore iPod in Recovery mode.

If it will not help then it is either network issue or you do try to install iOS4+ only apps.

More on restore process.