The 8gb iPod is not capable of downloading the IOS 4.3 update. If you want to run IOS 4.3 on your iPod, you will need to update to at least a 32gb iPod.
About 6.5 GB with iOS 5 installed
Sorry to tell you this, but apple stopped updating the iOS for the 1st and 2nd generation, and the 3rd gen 8gb iPod touch. I have one too and I'm sad. SORRY!
Upgrade to iOS 4. It's free. It won't work if you have an old iPod Touch (before September 2009) or any 8GB iPod Touch. You'll need to jailbreak to get wallpaper.
Only certain model iPod touches are capable of supporting iOS 4.3. The minimum iPod touch capable of supporting iOS 4.3 is an iPod touch 3rd generation, from 2009. The highest iOS that this model iPod touch supports is iOS 5.1.1.
iOS 4.2.1 is the highest iOS firmware you can reach on the iPod Touch 2nd Generation.
No, only iPod Touch 5 can use iOs 7
You can't downgrade an IOS on your iPod Touch.
iOS is not compatible with any iPod that is not an iPod touch. This means there is no way to install it on an iPod shuffle, classic, or nano.
iOS 7 isn't available on 4th gen iPod Touch
You can't downgrade IOS!
iOS 5 is only available to iPod Touch 3rd Generation and Above. If you are eligible, plug in your iPod into iTunes and it should prompt you to upgrade to iOS 5.