Hello, Welcome to Apple Discussions.
I apologize that you lost data on the iPod Touch and are not able to update it at this time.
You say the iPod Touch says connect to the computer. Are you getting a USB Cable & iTunes Logo on the iPod Touch? or an actual message saying connect to iTunes?
When it is connected, Hold down the Home button & Sleep wake button together, Do not let go. iPod Touch will power off, then silver apple, then will get USB and iTunes logo. Let go if you see this.
Relaunch iTunes, Should see it in recovery mode. If not disconnect and reconnect.
iPhone and iPod touch: Unable to restore
http://support.apple.com/kb/HT1808