I just received a new 32G iTouch for my b'day.

So, I go into my existing iTunes to check for updates even though I have set it up to automatically update since it's usually behind the curve. Currently it is at version 7.4.1.2 (on 8/10/08). Other info I was able to get includes:
CD Driver 2.0.6.1; CD Driver DLL 2.0.6.2; and Apple Mobile Device 1.1.1.1. I actually got the prompt to update but when I click "yes" it does absolutely nothing. I then went to apple's website to download it and it gets 99% to completion and quits. This tells me something is going on (or not) in the communication between my computer and Apple. So, I have not been successful in downloading the latest version (7.7.1) and thus unable to use my new iTouch.
When I first plugged in the iTouch to put my library on it I assumed (silly me) that Apple actually keeps the software up to date since I have commanded it to do so but all I get on the screen is a picture of an iPod cord plugging into iTunes. I have no clue what this means but since I don't have 7.7.1 it doesn't really matter.
My daughter bought an iTouch a few months ago plugged it in to her existing iTunes and voila! her library loaded without a hitch and she is happily adding music and otherwise managing her account. Her current version is 7.7.0.43. Me, BUPKUS!
Now short of removing my existing iTunes (my libraries are backed up on my hard drive) and attempting to completely download a new iTunes does anyone have any suggestions? I'm just afraid that I won't be able to get it to download properly and then I have no iTunes at all.
I have also considered creating a new user name on my computer, downloading a new iTunes then when I'm sure it is working delete the old one and from my back up load all of my files onto the new one. what do you think?
I love my iPod, But I hate Apple.

They lock you into one way of doing things, don't offer a lot of help and when you talk to a "Genius" at the "Genius Bar" you get told that windows is the likely suspect. There is a reason the majority of the world works on PC's. Apple doesn't work with anything but apple. I'm rambling, sorry! It's just so frustrating.
Also, how can I remove my old iPod from my iTunes? when I plug it in for syncing is the only time it shows that particular iPod on the screen.
Thanks in advance for any and all help,
Socrmom