From this article: iTunes: Advanced iTunes Store troubleshooting
These alerts might occur when trying to authorize iTunes or during launch when iTunes checks for authorization information.
- Install the latest iTunes from apple.com/itunes/download/
- Remove the SC Info folder.
- If that does not resolve the issue, see iTunes: "Error 42408" or "Error 42404" after upgrading to iTunes 9.0.3.
should I restore?
Yes. At this point it seems as though the iPod's software is corrupt and a restore should correct that.