It sounds like you may have missed a key restart of your iTouch after installing the BSD Subsystem. There are several points that I felt it necessary to restart the iTouch and while I can't say for sure that it is required, it is not completely a guess that you probably need to do that. So let me outline the steps...
1) run autodown
2) install the 1.1.1 firmware
3) jailbreak your 1.1.1 iTouch
4) update the installer
5) install BSD Subsystem
6) restart iTouch (hold the wake button at the top of the iTouch until you get a restart prompt)
7) set auto-lock to never
7) install the iJailbreak source and then install the iJailBreak 1.1.1 icon
8) run iJailBreak icon...should take 30mins to an hour+
If you go to the following link you should see what the messages should look like if it is working right...
http://forums.abwaters.com/viewtopic.php?f=4&t=10&st=0&sk=t&sd=a&start=10Try again and let me know what looks different and we'll figure it out!