Recently, the iPhone development community has resolved this inconvenient booting method by releasing a software-only jailbreak solution. As a result, the current software/firmware 2.2.1 revision has been jailbroken (full read/write access to the file system), meaning that unofficial third-party applications can be installed under this release.
According to a post on ipodtouchfans.com, this exploit had been discovered "shortly after redsn0w in early February," which means the discovery was made sometime after the initial (redsn0w) jailbreak and the release of the tethering/dongle hack.
So why did the iPhone development community keep this fact to themselves? The post continues with an explanation: "The truth was, the dev-teams had decided they were going to try to hold onto it until the next iPhone came out so the exploit would still be present, it might actually still be too late for Apple to patch the exploit but don't count on it."
The iPhone and iPod Touch share the same operating system, so the folks discovering the exploit hoped to hold onto that knowledge in order to jailbreak the next iPhone operating system or hardware release. Unfortunately, another group discovered the exploit and because they attempted to exploit it commercially, the iPhone development community went ahead and released their second-generation iPod Touch hack for free.
Video for the Mac is shown below: