I finally got mine to work. I had to disable forms based authentication for OWA. It seems my iPod Touch uses the http and https ports to connect to exchange. Also you have to have Windows Integrated Auth Enabled on the OWA virtual directory. Here is a good article, I setup the second virtual directory on my server,
http://support.microsoft.com/kb/817379/ You can skip some steps in the article like disable SSL, I keep mine enabled.
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