Cannot upgrade iPod 4G to IOS 5

Cannot upgrade iPod 4G to iOS 5 (or restore to old version).

It says iPod software up to date see image above.

When i click "Check for Update" it does not seem to contact iTunes and go off and install update but opens a window for me to select a file.

I downloaded "iPod4,1_5.0_9A334_Restore.ipsw" and selected it, it says it will verify update with Apple (See image below), it extracts file but then reports error "3002".

Have gone through the list of items to check when errors in 3000 range reported, i.e.

• Have latest version of iTunes: 10.6.0.40
• iPod is 4G, ran diagnostics and it states it at end of report (iPod, iPod touch (4th generation) running firmware version 4.2.1)
• Using Windows 7, (Software up to date version, )
• Disconnected all USB devices except for iPod
• Connected directly to Internet, can see iTunes Store and download apps
• The diagnostics report indicates the PC can contact all the websites, see report below, i.e. was not blocked by firewall (but cannot disable microsoft forefront end point protection 😟 to rule that out )
• Restarted PC several times.

Firewall Information

Connection attempt to Apple web site was successful.

Connection attempt to browsing iTunes Store was successful.

Connection attempt to purchasing from iTunes Store was successful.

Connection attempt to iPhone activation server was successful.

Connection attempt to firmware update server was successful.

Connection attempt to Gracenote server was successful.

Last successful iTunes Store access was 2012-04-23 14:56:10.