Hi debs2014,
You will have to place your daughter's iPod Touch into recovery mode to restore the device to default factory settings.
There is no other way to recover a lost password, but to place the device in recovery mode then restore.
Here's the article for placing the device in recovery mode:
http://support.apple.com/kb/HT1808
If your daughter purchased apps and music from itunes she can re-download from the itunes and apps store apps on her device by tapping the icons on home screen, then signing in with apple id and password.
Here an article that can help you re-download past purchases:
http://support.apple.com/kb/HT2519
If your daughter didn't purchase the apps and tunes from the itunes or apps stores, then she will have to re-download or re-purchase the items from where she purchased the apps and tunes initially.
Hope this helps.
Let me know.