The features that iOS 4 on the second generation iPod lacks in comparison to iOS 4 on the third generation iPod are:
Yeah, that's it. Multi-tasking I can get on board with; hardware constraints ahoy — but no wallpaper? Are you kidding? If wallpaper is a massive problem for the hardware, there's something wrong with the software.
I decided to jailbreak it. I opted for both wallpaper and multi-tasking during the process, and both work absolutely fine.
The decision to disable these features is most likely a business one; although it could be a technical decision that only applies to high-use cases. But, taking that into account; why not just offer an on/off slider in Settings.app, defaulting off? I would prefer to have the option in the first place rather than having to forcefully give myself the option.
There's a video I used, but it's a little convoluted as it explains the steps you need to perform even though the "redsn0w" software does that for you. The important bits are below.
Put the firmware file in the extracted "redsn0w" folder, then run
redsn0w.exe. If you're on Windows 7 you may have to run it in compatibility mode with Windows XP (Service Pack 3).
Check the things that you want applied to your device when prompted, (I opted for verbose boot, multi-tasking, home screen wallpaper etc) and follow the instructions.
If anything goes wrong during the installation, simply open iTunes and restore your iPod back to its factory settings.