Sounds like it is trying to restore from a bad back up.
If I remeber correctly, you can select which back up to choose from, when the ipod is plugged into itunes and it pops up, right click on it and there should be a option to select which back up to pick from.
If not, google for the firmware (something like ipod touch <model) firmware. be a pretty big file, Under 200mb.
Once downloaded, plug your ipod in on your pc, then clcik restore while holding the 'shift' key, then select this fimrware file you downloaded.
It should be really easy as it is only one file, once done, youll have fresh new ipod. You will loose all your songs/ pics that are currently on there so be warned!
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