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Apple does offer engraving for iPods that you order through their website or through their retail stores only. If you purchased an iPod anywhere else your only option is to have another company engrave the iPod for you. The benefit to this is that Apple only engraves text while if you go to a laser engraver, they can engrave a black and white image and text for you. The only thing to make sure of if you do decide to go with engraving your iPod outside of Apple is to see if your warranty is affected in any way. If you're unsure, call Apple and ask.
I believe so. If not at the apple store, ask there and they should be able to direct you somewhere that can. My roommate last year had hers engraved (it was a gift to her).
It is actually possible. Apple will engrave whatever you want to engrave on your iPod Touch. If you pay for an engraving, they will most likely put it on there.