Can't restore ipod touch 2g (MC)?

Important info beforehand: I have a iPod Touch 2g MC model, on iOS 4.2.1. I use the latest iTunes update, and my laptop OS is Windows 7...

Hello all!

Here's the backstory, I am new to the support community and have started using it just to find a solution to this following problem:

I have realized that my iPod is cluttered with loads of stuff that I dont actually use and is running alot slower than it could, so I decided to restore it to a clean, default iOS 4.2.1. I also had a passcode on it which i had forgotten (after not using the ipod for quite some time), and this made a restore the only option available if i wanted to use my iPod.

So, I plug my iPod in, it starts syncing and I cancel it to save some time. Then I click the little "Restore" button and a small window pops up saying "Contacting the iPod software update server" and I wait for iTunes to do its thing... After about half a minute, I am faced with a different message, an error this time, saying "The iPod software update server could not be contacted" and I click ok and nothing happens... At this point in time I notice the "Accessing iTunes Store" mesage at the top of itunes is still going where it should have stopped ages ago, but i put it aside. I then procede to put my ipod in Recovery Mode and try the restore again and, again, the same error mesage. Hmm... I know i have previously downloaded the 4.2.1 ipsw file somewhere, so I search my computer for it and once i find it I shift click the restore button and restore with the ipsw. This time, the restore process seems to go through normally, up to the point where I would normally be faced with the screen in iTunes where I can set up my iPod as a new one or not, however, this does not happen. My iPod boots up to a "Connect to iTunes" screen, with no unlock slider, but it does have the battery icon in the top right hand corner... It is connected to iTunes? And on the iTunes window it seems to recognise my iPod but when i click the iPod tab under Devices on the left hand side of iTunes, I am taken to a Blank screen with the word iPod is displayed right in the middle, and there is the "Accessing iTunes Store" still going at the top... This is the point I am at... I've searched for hours on the internet but to no avail 😟... I've even re-installed itunes and all apple software AND I've re set the hosts file, Which all of this seems to be linked to... I also cannot access the iTunes store and cannot authorize/de authorize this computer without another one at my disposal... Help!

I highly doubt this is a common problem but if it is (Or isn't for that matter) and someone knows a fix, please, PLEASE tell me ASAP!!

Thanks Everyone!

Cameron