Try removing all other USB devices and peripherals from the PC (minus the keyboard and mouse of course) and reboot your PC. Then reconnect your Shuffle and try restoring your iPod once more. It might not hurt to try another USB port as well, preferably a high powered USB 2.0 port on the back of the PC.
Lastly, try using another USB cable if you have one available to rule out a damaged/faulty cable.
B-rock