What happens when you connect the iPod to your computer and restore via iTunes?
Place the iOS device in Recovery Mode if necessary to allow the restore.
If recovery mode does not work try DFU mode.
How long did it take to get that error?
After you placed the iPod in recovery mode and then tried to restore did iTunes say it found an iPod in recovery mode?
Did you try DFU mode and then restore?
Place the iPod in recovery mode using one of these programs and then restore:
For MAC or PC