It should ask you if you would like to install the new updates.
There is no such thing as 'installing' an iPod Touch.
No the touch has its own updates. =]
Assuming you have at least a 2nd generation iPod Touch (1st generation iPod Touches do not support iOS 4.) simply plug your iPod Touch into your computer and open iTunes. You will be automatically prompted to update your iPod Touch. If not, find your iPod on the left hand side. Click your iPod and your iPod's information will open. Click the button labelled "Check for updates" and your iPod Touch will be automatically updated to the latest iOS version.
When your iPod touch is connected to your computer iTunes should pick up whether there are any updates for your ipod.
no
You can install free text messaging apps, but you have to pay for minutes to call people on the iPod Touch.
The ipod touch 8gb mainly because you cannot yet jailbreak the htc touch and the ipod can have firmware updates.
No, however the ipod touch 4g has two cameras on it
you cant
No
Sometimes depends if the apps that you install have bugs
The software updates for the iPod Touch are free (See links below).