How do you fix a disabled ipod touch?

As the manual says, restore it:

iPod touch User Guide (For iOS 4.3 Software)

Just to elaborate on roaminggnome's answer, heres exactly what you should do:

1. Connect your iPod to the computer that you used last to sync it.
2. When the iPod appears in the iTunes sidebar, click it.
3. Then click the "Restore" button.
4. When prompted, choose "Restore From Last Sync".
5. The iPod should take a while to restore.
6. When you turn your iPod on, it should not be diabled anymore.

*Note: If this does not work, revisit Step 4. Then, instead of choosing "Restore From Last Sync", choose "Set Up As New iPod". BUT CONSIDER YOURSELF WARNED: THIS WILL DELETE ALL OF YOUR DATA INCLUDING MUSIC, VIDEOS, APPS, AND MORE!