This tread (
http://www.thestudentroom.co.uk/showthread.php?t=723183) is about the same problem you're having. At some point it's said:
"Hold down Select / Menu (to reboot the iPod)
As soon as the Apple logo appears, hold down Rewind / Select until...
...you see a backwards Apple Logo.
At this point, you will have entered Diagnostic Mode. It'll test the RAM, and then tell you to HIT PLAY TO CONTINUE. Hit 'Play'.
You'll be in a menu that you advance by hitting FF (Fast Forward). Advance to the 'DISKMODE' entry.
Hit 'Select.' This will put you into Firewire Disk mode. The screen should change to the familiar 'Do Not Disconnect' mode. At this point, connect it to the computer.
Run the restore utility; it should now recognize the iPod and offer to Restore the factory software. Do so. You'll lose whatever's on it, but you'll avoid having to send it back in to Apple and paying repair fee."
You can also look here:
http://www.command-tab.com/2006/03/31/fixing-a-frozen-ipod/ and
http://support.apple.com/kb/TS1399?viewlocale=en_US
