Some of us have had problems choosing the right settings to connect an iPod Touch 3G with a Wi-Fi router. In my case, the router is a Belkin N150. It would detect the router, but refuse to link because the password was “wrong,” although the password was indeed correct.
After some extensive scanning of the available literature, the solution that worked for me is a simple one. You just got to General on the Touch and choose Reset. This will give a range of resetting options. Take care to choose the network settings option and proceed to reset. A red dialog at the bottom shows you what to press. Go ahead and press it. The Apple icon appears briefly, the reset is carried out and the Touch is now ready to link to the router.
I think it may also be necessary to keep your router settings at Wi-Fi b and g standard, rather than n, since iPods support only the former.
There is a helpful video for this particular procedure. This worked for me. I hope it does for you, if your problem is similar.