wheel moving without touching it

When I turn my ipod on, it will display the sad person face. Then when you try to use it, the wheel will click as if it is being touched by my finger when actually I'm not touching it at all. So, when you try to listen to music the volume will constantly get louder than quieter. It is really annoying. If you want to use it on the treadmill you have to turn the the lock bottom on. I have tried to restore the setting when plugging it into the computer thru itunes. I have been unable to reset by holding menu and the middle bottom, it doesn't seem to work at all. Does anyone know what is going on, or has this happened to anyone before