My iPod 2G became a paper weight after trying to upgarde to iOS 4.0 from 2.2.1.
The upgrade exited with error code 37.
Also, my iTunes din't recognize the iPod while connected to it via USB
The culprit was indeed the ZoneAlarm firewall...
Turn off all third-party firewalls before upgrading to iOS 4.0. iOS 4.0 doesn't like some of these firewalls.
I got the iPod to DFU mode...pressed the sleep/wake and home buttons for 10 seconds, then released the sleep/wake button and held the home button for another 10 seconds. iTUnes recognized the device and said it found the iPOD that is in recovery mode.
Clicked the Restore button for a successful restore.
Then, it gave me a choice to either restore the iPOd from my backup or present a fresh iPOD.
I got all the data restored.
Cheers !!