Ipod Nano 5th Gen restoring problem

Hello,

I have a nano 5th gen 8Gigs that I cannot use anymore because it freezes giving me this error message "Ipod needs to be restored, use itunes to restore" (something like that), so I plugged it in to my Mbp with itunes 10 installed and perfectly working, the ipod resettes itself again and it is recorgnized for a second and i get this message (from itunes) "waiting for Ipod" with a progress bar, lasts a few seconds and then gives me this message "The ipod software update server could not be contacted. the server does not support this version of itunes." and a link in more information to this faq : http://support.apple.com/kb/TS1275?viewlocale=en_US&locale=en_US which i have read and followed all step to the dot and have not made any difference. So i tried to force the ipod to go in to disk mode following instructions here : http://support.apple.com/kb/HT1363 with no sucess because after resetting the ipod it goes straight to the error screen with the "restore with itunes" living me with literally no time to be able to press the PLAY + SELECT button, now here is some thing strange, when i tried though to get it in to diagnostics mode it worked and still does everytime i try it, even though the process is relatively simmilar to forcing it in to disk mode. I also tried using windows 7, and all the error codes and behaviors remain exactky the same of both PC and Ipod. I would not be bothered and just take it to the apple centre, but im a bit short on cash at the moment so i wonna be sure that i tried everything possibile make sure the only thing i could do was take it to them before i eventually do. any suggestions, questions, solutions or ideas will be highly appreciated. Thanks guyz later.