The second-generation iPod touch cannot be upgraded past 4.2.1. It requires newer hardware.
If it is a third-generation iPod touch, but iTunes is telling you it's up to date: upgrading to and syncing with a newer iOS version requires a more recent version of iTunes.
The last version of iTunes that ran under 10.4.11 is only able to deal with iOS up to 4.2.1, IIRC. Going beyond that requires installation of 10.5 or 10.6, and then a newer iTunes.