To put your iPod into recovery mode:
1. Make sure the iPod is connected to a computer with iTunes installed on it.
2. Hold down the sleep/wake button(top button) and the home button at the same time until the iPod screen goes black then shows the apple logo( usually 10-15 seconds).
3. Once the apple logo appears on the screen, let go of the sleep/wake button and keep holding the home button.
4. A dialog box will appear in iTunes that states an iPod in recovery mode has been detected if you are successful and the display of the iPod will show the iTunes logo and a USB cord.
5. Click ok, then click the Restore button
After that you should be up and running in no time!
I hope that this is helpful.
I had the same problem 1 month ago, If I have'nt read this, my iPod would probably in a safe keeping box now cause I read a lot of advise regarding this, and they said my iPod is dead.. Until I read this, I had the same problem and it worked in my ipod. You just have to worked hard on it. Just follow the advise given.
I would like to thank you for posting this! A huge Help!