Yes, you do need to run the latest firmware (3.1) for both the Touch and the iPhone. For iPhone users this is a free firmware upgrade, Touch users it's $4.95. This is an Apple requirement, so don't get mad at us!

We also state 3.1 is need both in iTunes and on our website.
Besides, you really want the want the 3.1 Apple firmware anyway.
http://www.apple.com/ipodtouch/software-update.html