Then you should just leave this option blank.
I remember running across a fix for this in Cydia a while back, can't remember the name though :/

Yeah, seems like even when I edit the file to work without a proxy, the ipod still ignores it.

Is there a particular place the proxy setting on the ipod (from the in-ipod preferences) should be set?

General - Network - Wifi settings if it's like the iphone

I want to know if your vpn service provide router configuration in your states because in my state most of the times there are some sites which are forbidden and I want to open them, does vpn service can help me with this like in china people use vpn for facebook purpose.. I searched in online sites for good vpn plans but want to get some reviews about it..