I had the same problem about 10 minutes ago. I don't know if you're still having this issue, considering how long ago the post was, but fyi.
A bit of backhistory - I received the ipod from a friend, who could not get it to work. It was getting the blinking green and orange light. I installed the latest version of iTunes 7 and updated the firmware on the device, which seemed to make it work just fine. This is a first-gen iPod shuffle 1gb.
After about a day of heavy use, it needed to have the battery recharged. I plugged it into the usb port and that's when I got the error -124.
How I was able to fix it-
I uninstalled iTunes 7 and downloaded iTunes 6.0.5.20 from another website. Do a google search and I'm sure you'll find a few sites still hosting it. Following that, I removed the iTunes library file remaining from version 7 and rebooted. Then I installed v.6, but it still didn't work.
Figuring to try it, I attempted a quick format of the iPod in XP, but it failed as well.
After which, I ran the iPod Restore Utility, which gave an error about the disk. At this point, I was afraid that the iPod had choked, so I took a look at it under My Computer - but it now showed up as IPOD, not Removable Disk. So it was a step in the right direction.
My iPod connects to my machine via a USB extension cable. I unplugged it from there, plugged it directly into the USB port at the back of the PC, and opened iTunes. It found the device and allowed me to name it, but it still didn't access properly. After this, I closed iTunes and ran the Restore Utility again.
After that finished, it gave a message of success and the iPod went right back to work.
There have been a few notes around the internet about iTunes 7 and this problem, so I'm hesitant to update from 6 at this point. I don't know what is causing the problem specifically, so I'm just gonna stick with 6 until I'm confident the device will hold.