Brand New iPod- Brand New Account- Could Not Sign In An Unknown Error Has Occurred

Just got home with a brand new iPod touch from the Apple Store. iOs 6.0.1

Set up a brand new Apple ID and iCloud account. Verfied and confirmed the account via email on the iPod. iPod has not been attached to a computer.

I am attempting to download some free apps from the App Store and I get the following error:

Could Not Sign In An unknown error has occurred.

I went into Settings/iTunes & App Store and attempted to enter my Apple ID and Password. I get the same error:

Could Not Sign In An unknown error has occurred.

I clicked on Forgot Apple ID or Password? I then select Enter Your Apple ID. I go through the Password Retrieval process in iForgot. I select Answer Security Questions. I verify my date of birth. I correctly answer my Security Question. I attempt to enter the same password I already have (in an attempt to eliminate the scenario where my password may have been mistyped). I get the following message:

The password specified has been used in the past year. Please select another.

Now I know that the password I have been entering in the App Store and in Settings is correct becasue I just set up the new account and have only had one password.

I cancel out and close the Safari iForgot window.

I go back to the App Store and attempt to login using my correct Apple ID and an intentionally mistyped password. I get the following message:

Your Apple ID or password is incorrect.

Now I know the Apple Store does indeed recognize my correct Apple ID/Password combo, otherwise I would get the same Unknown Error message.

I have attempted to force quit all apps, reboot, re-try and reboot ad nauseum, but to no avail.

So, someone at Apple, tell me, what the heck is going on? How do I proceed?