I've got a 2g 32 GB ipod touch, with iOS 4.2.1, jailbroken with the latest version of redsn0w, with a properly working version of Cydia SSHed on. This is now the third full restore/rejailbreak I'm on. The first time I did it, by the time I got around to installing WinterBoard, I was experiencing problems at that point, so I decided to doa restore, etc. WinterBoard then worked for awhile, but then I eventually started having the same problem. I then did another complete restore/rejailbreak, which I'm on now. I have nothing installed except WinterBoard, and I am still having the problem.
Basically, I install WInterBoard through Cydia, go into it, go to Select Themes, check off the ones I want (which show up perfectly inside the list of installed themes), go back to the main WinterBoard menu, and then tap Respring in the top left corner. It highlights, recognizing that it was selected, but then nothing happens. Like, literally nothing. It doesn't work for awhile and then not display the results, it just doesn't do anything.
I've done lots of googling, and found several other people having the same problem, but none of the solutions I find seem to work. I've tried rebooting the ipod, reinstalling WinterBoard, and just about every other thing I can think of.
For my issue I think it is an issue with the theme's files as far as how iOS 4.2.1 works. I have tried rebooting, respringing, and checking permissions via SSH. If I can think of anything that will help you, I will post again.