I have a 4th Gen with 4.2.1. I jailbroke it with Green Poison and it worked from what I can tell. Only problem is I can't figure out or find Cydia to download and install. I am not sure if I am doing things wrong or maybe the IPOD is actually not Jailbroke but according to Green Poisons instructions it is jailbroke.
You must first Jailbreak your iPod with GreenPois0n, then download the redsn0w jailbreak and the 4.2.1 official update. Follow the instructions that come along with the download. On redsn0w, choose "Install Cydia" then your iPod will be unteathered and cydia will appear on the icon list. I do not have links for you so you will have to search for these downloads.