This is only supposed to happen with Microsoft products.
I plugged my iPod video into iTunes 7.02 and I was told an update was pending. It included 'bug fixes'. The update seemed to proceed as normal, but the installer asked me for admin privileges to modify iTunes. After I entered my un and pw I got a lovely error message: "The iPod could not be updated. An unknown error occurred (1417).
The iPod then reset, and appeared to have updated itelf to 1.2.1. Hmmpph. I could referesh it entirely, but the USB iPods take forever to load (Firewire was way faster, no matter what the unknowning claim about USB 2.0).
So what happened? I can't download and reaply the update, Apple doesn't support that any more. Distribution is now only via iTunes. The OS X iPod update files are now in \Library\iTunes\iPod Software Updates. There are two identically sized files there: iPod_13.1.2.ipsw and iPod_22.214.171.124.ipsw. My guess is that 13.1.2 from 10/12/06 came with iTunes 7.02, and that 126.96.36.199 is a recently released fix to a but in 13.1.2.
The iPod says it's running 1.2.1. I think I'll wait and see what happens ...
Update 12/14/06: The 1417 error is very common on Apple's Discussion site -- but for Windows, not Mac. There's a hint enabling disk access may lead to the error message.