Having used ios 4.x.x on the ipod touch 2g (and unfortunately the iphone 3g), i have come to the conclusion that they weren't exactly designed to be run on those devices. Granted they are only 2 years old, which is relatively short in biological terms, however it is an age in technological terms.
Having done the usual course of finally updating to ios 4 (and jailbreaking) several months ago, it was to my dismay that i discovered Apple's shiny veneer of perfection was shattered on these older devices.
Firstly it seemed to me that ios 4 didn't add any killer new features to these older devices (with the much anticipated multitasking added to the iphone 3gs).
Well, rather than doing complete downgrade i opted for a compromise; instead of embracing the laggy features, i turned it all off.
Spotlight search? Nah
Enabling wallpapers in jailbreak? Gone
Enabling multitasking via cydia? Poof!

Yet it still does not have the feeling of speed that ios 3 did.

So what did i learn form this entire drawn out saga?
Research first, then update!