Resetting iPod Touch

I just purchased a Touch for my daughter. Before I could sync it with iTunes on my computer, she set up a passcode to protect it from her little sister. Now she doesn't know the passcode and the "red disabled" screen keeps coming on. I read in the manual and it states that you can restore it with iTunes, but when I connect it to iTunes, it says it can't connect until i input the passcode. Is it possble to do a "hard reset"?