That might be why.... I seem to recall it needing 2.2 or above.... Yep....
See this post
Originally Posted by davidfor
You have to upgrade your Touch to at least firmware 2.2.0. Otherwise, you use a metadata plugboard to put the series info into the title and put the books on the device again.
Now if the upgrade is not being offered to you by Kobo you can do a manual upgrade. See links / instructions in Direct Links to Kobo Touch Firmware
but be sure to select the right file for your unit.