Most likely your iPod Hardisk has crashed, so do a Disk Diagnostic as posted by tt2, it will tell you how bad is your hardisk.
If you have high Pending numbers ( causing the freeze), then formatting would not help.
But if you still want to format, in Vista
Go to CMD and type
format drive: /FS:FAT32
where drive: is the iPod drive ID, eg E: or F:
note: formatting a 120GB may take a long time, could be 2 hours or more.