Hola Kiwi,
The big issue of the IPod touch is it doesn't natively support subtitles like a DVD player or GOM or VLC on the computer. So you either have to get a file with them already permanently there ("hard subbed") or encode them yourself into a video file.
The tool I use is EMTotal Video Converter on Windows XP. It does 2 important things you need to be able to convert files with subs to an IPod touch - a demux tool, which allows you to remove the subs from a file, and a video filter option which allows you to hard encode subtitles into a file. It has default multiple settings for different devices (IPod, Zune) , allows you to customize your settings, and allows encoding in multiple formats.
Many of the one-button encoders from my experience are hit or miss - sometimes they are unable to read video files like MKV or unable to put in subtitles unless the subtitle is a specific format.
I do not know your level of technical expertise and patience, but if you are looking for a "one-button" solution then I have to say I haven't found one so far because of the myriad of formats out there. I have even gone so far as using a subtitle program to hand edit subtitles myself. But for me to be able to carry full series' of Ghost in the Shell, Full Metal Alchemist, Rurouni Kenshin, Tengen Toppa Gurenn Lagann, etc, on my IPod touch, its worth it...
