Next, you’ll need the decryption keys.
iPod Touch 2G
iPod Touch 3G
Next, you’ll need to run the following command if you’re on Mac OS X or Linux:
./vfdecrypt -i <dmg> -o decrypted_fs.dmg -k <key>
If you’re on Windows, run this:
vfdecrypt.exe -i <dmg> -o decrypted_fs.dmg -k <key>
Replace <dmg> with the big extracted DMG from the IPSW. Replace <key> with the appropriate decryption key.
Running that command will spit out the decrypted DMG, which you can then mount and browse.
A lot of people have been wondering how to re-encrypt/re-compile the DMG file to put it back inside of the IPSW file. Well, you can’t easily do it. There are a lot of checks that iTunes have to conduct beforehand. The only tools that are able to modify and recompile the DMG/IPSW is PwnageTool and sn0wbreeze. Unless you know how those 2 tools work, you won’t be able to manually do this yourself. Also, those tools don’t support 4.0 beta, so don’t even bother.