2. Now does the latest free firmware that comes with ipod touch is it 2.0 or 2.1?
<pedantic> It's not firmware; it sits above the microcontroller code. It's just software like Mac OS X. Every once in a while, a new version of the iPod Touch/iPhone OS software is released and you can update your device a la updating your Mac. </pedantic>
As for what version comes on it: iPod Touches sold through Apple today should have 2.1 preinstalled. I don't know if there are any in the channel that are still preloaded with 2.0, but if there are, 2.1 is a free update to 2.0 anyway. When you plug it into iTunes the first time, just click the check for updates button and see if there's a newer release to install.