Place the iPod Touch into DFU mode. This will be similar to what the factory would do to install the iOS onto new iOS devices.
Placing it into DFU mode will allow you to "format" and install the current iOS for that device.
To place your iOS device into DFU mode.
First connect you iOS device to you computer.
Open iTunes if not already open
Now turn off your iOS device using the power swipe.
Press the home and sleep button on your iOS device for 10 seconds.
Release the sleep button but carry on holding down the home button. For another 10 seconds.
Your iOS device should now be on DFU. Click on restore and iTunes will download the latest iOS for your device.
Hopefully that sorts it if not, you will have to go to a service centre or call Apple Care up and get them to collect it and repair it. (replace it) Or go into an Apple Store.