No clue, but out of curiosity why iOS 2? My 1st gen touch is on 3.1.3
edit: oh wait, they started charging for updates back then, right?
Yeah it's a combination of him being paranoid about software updates and I think iOS 3 is (or was?) a $10 paid update for Touch users. So he's never updated the OS yet.
My parents went to the local AT&T store and the employee told them it wouldn't be possible to transfer stuff from his iPod touch to a new iPhone, but most of those employees don't know anything so I'm not sure I'd trust that.