Q: I just downloaded iOS 4.0.2 onto my iPod touch and was wondering why I can’t add wallpaper to my home screen. Please help!
A: It sounds like you’re using a second-generation iPod touch.
Certain features in iOS 4, including multitasking and home screen wallpapers are only supported on the third-generation iPod touch and the iPhone 3GS and iPhone 4. The third-generation iPod touch models are the 32GB and 64GB units released in the fall of 2009.
Note that the 8GB iPod touch still being sold by Apple is actually a second-generation model; Apple has simply chosen to continue selling the lower-capacity 2008 iPod touch model.