Yes you read that right, MuscleNerd of the iPhone Dev Team has posted some pictures on his twitter account, confirming the jailbreak works fine on iOS 5, but of course it is limited to tethered boot only, which means you will have to connect it to your computer on every reboot.
According to his initial testing, Cydia appears to be working just fine on his jailbroken 4th-gen iPod touch, he managed to install SSHing utility app called iSSH successfully, which can be seen in one of the screenshots below.
Apple released iOS 5 for iPhone, iPad and iPod touch yesterday at the WWDC conference in San Francisco. This new version of iOS brings over 200 new features, 10 among which are touted as key features, and includes: new revamped notifications system called ‘Notification Center’, Newsstand, Twitter integration, Safari Reader, Reading List, tabbed browsing for iPad, Reminders, Camera updates, Mail updates, built-in dictionary, PC-free (no cables required), OTA software updates, updates to Game Center, iMessage, AirPlay mirroring for iPad. Full list of features can be found here.