It is a hard drive issue you need to format it ...
Try to connect your iPod with another computer with the iPod updater pre-installed.
B. Still can’t see your iPod, put it in Disk Mode and connect with a computer, instead of doing a Restore on iPod Updater. Go and format the iPod instead.
For Mac computer
1. Open the disk utility, hope your iPod appears there (left hand side), highlight it
2. Go to Tab “Partition”, click either “Delete” or “Partition”, if fails, skip this step and go to 3
3. Go to Tab “Erase” , choose Volume Format as “MAC OS Extended (Journaled), and click Erase, again if fails, skip it and go to 4
4. Same as step 3, but open the “Security Options....” and choose “Zero Out Data” before click Erase. It will take 1 to 2 hours to complete.
5. Eject your iPod and do a Reset
6. Open the iTunes and click “Restore”
For Window computer
Go to folder “My Computer”
Hope you can see your iPod there and right click on the iPod
Choose “Format”. Ensure the settings are at “Default” and that “Quick Format” is not checked
Now select “Format”
Eject your iPod and do a Reset
Open the iTunes 7 and click “Restore”
In case you do not manage to do a “Format” on a window computer, try to use some 3rd party disk utility software, e.g.“HP USB Disk Storage Format Tool”.
http://discussions.apple.com/thread.jspa?threadID=501330&tstart=0
C. Windows users having trouble with their iPods should locate a Mac user. In many cases when an iPod won't show up on a PC that it will show up on the Mac. Then it can be restored. When the PC user returns to his computer the iPod will be recognized by the PC, reformatted for the PC, and usable again. By the way, it works in reverse too. A Mac user often can get his iPod back by connecting it to a PC and restoring it.
Tips
a. It does not matter whether the format is completed or not, the key is to erase (or partly) the corrupted firmware files on the Hard Drive of the iPod. After that, when the iPod re-connected with a computer, it will be recognized as an fresh external hard drive, it will show up on the iTunes.
b. It is not a difficult issue for a Mac user to find a window base computer, for a PC user, if they can’t find any Mac user, they can go to a nearest Apple Shop for a favor.
c. You may need to switch around the PC and Mac, try to do several attempts between “Format” and “Restore”
http://discussions.apple.com/thread.jspa?messageID=2364921�