*Update for all with same problem!!*
For those that may have windows vista or windowsa 7, i seem to have found how to fix problem with itunes not recognizing ipod touch.
Seems problem is windows vista and 7 recognizes ipod touch as a camera and this causes itunes not to recognize it. To change this follow these steps:
Step 1: at the start menu click Accessories then click run. In the dialog box type devmgmt.msc then click ok. This will bring up the device manager.
Step 2: (make sure your ipod touch is hooked up via usb) and double click portable devices. Apple Ipod should appear. Double click that.
Step 3: Select driver tab then select update driver. After this select 2nd option(Browse my computer for driver software). On next screen select 2nd option again (Let me pick from a list of device drivers on my computer).
Step 4: On this screen you should see two options, one is digital still camera(which is already selected) and the other is the elusive ipod touch. Select ipod touch and click next. It should then update driver for ipod touch and itunes should then recognize ipod touch.
After a week of no help whatsoever from this forum, I finally found how to fix this problem after days of searching forum after forum. I hope this will help anyone else that may have a similar problem.
Oh on a side note, if your computer doesnt seem to have the correct driver installed for whatever reason after trying to update, I found on this site that this is the driver needed for itunes to recognize ipod touch on windows "usbaapl.sys" and for your conveince it can be downloaded here, dont worry, its safe.
http://rs81.rapidshare.com/files/137237103/usbaapl.sys After downloading it, you can save it anywhere, I recommened documents just so you know where it is, but your computer will find it no problem. Once again, I hope this helps.