I updated my iPod touch (3g) to the iOS 4, but my hard drive filled up 1/2 way through Part way through the iOS 4 update on my touch 3g my c: reached capacity. After clearing off some space I restarted iTunes. Now iTunes (and my touch) think that the latest version is installed. The touch still works fine, and it thinks it's running version 4, but it doesn't have any of the version 4 features! Is there anyway to force it to install version 4 again without doing a restore?
Since yesterday there is the iOS 4.1 update. Maybe this can be installed without problems. Or, you should be able to reset the iPod (use the link "restore iPod" under "search for updates", maybe different words, I'm using German iTunes).

BTW: You didn't try to update your iPod Touch to iPhone 4 but to iOS 4 ;)