The iPod Touch contains two screens: the outer glass protective screen, and the actual touch screen (also called the digitiser). The steps below explain how to replace both, depending on which is broken.
Replacing the LCD Digitizer - Carefully remove the chrome backing of your iPod with your iPod opening tools (or a Flathead screwdriver). Do this by sliding the tool between the gap of the chrome backing and the front faceplate. After working your way steadily around the iPod, the back will pop off.
Place your iPod face down on a table or other surface. You now need to remove the rechargeable battery. Do so by carefully prying it upward. It is glued to the iPod so it'll take some effort to remove it.
Remove the logic board. It is attached to the battery and is secured with 4 screws. Keep the screws safely nearby.
Take out the liquid crystal display (LCD) digitizer. The digitizer is held in place by 16 tiny screws. Keep the screws in a safe place. If applicable, replace the broken digitizer with a new one. Do this by unplugging your broken LCD screen carefully (you can see the black plug in the image), then plug in your new LCD screen.
Put your iPod back together by reversing these steps. If you are replacing your outer protective screen proceed to the next step.
Replacing the Faceplate - Now that your detached faceplate is ready to be repaired, remove the square 'home' button and set aside.
Lay the faceplate face up and heat with a hairdryer. The adhesive holding the screen to the faceplate needs to be heated to separate the two. Remove and discard the cracked screen.
Now replace your 'home' button and lay your replacement screen over your faceplate. Heat the faceplate with your hairdryer to allow the adhesive to bond with the screen.
Let your screen cool down and make sure that it has adhered to the faceplate completely.
Put your iPod back together carefully by reversing these steps.