Q: Passcode help!

Disabled

Place the iOS device in Recovery Mode and then connect to your computer and restore via iTunes. The iPod will be erased.

iOS: Wrong passcode results in red disabled screen                         

If recovery mode does not work try DFU mode.                        

How to put iPod touch / iPhone into DFU mode « Karthik's scribblings        

For how to restore:

iTunes: Restoring iOS software

To restore from backup see:

iOS: How to back up     

If you restore from iCloud backup the apps will be automatically downloaded. If you restore from iTunes backup the apps and music have to be in the iTunes library since synced media like apps and music are not included in the backup of the iOS device that iTunes makes.

You can redownload most iTunes purchases by:

Downloading past purchases from the App Store, iBookstore, and iTunes Store        

Try disabling the computer's antivirus and firewall.

- Next try the manual install method of:

iDevice Troubleshooting 101 :: iPhone, iPad, iPod touch

Place the iPod in recovery mode after the firmware download is complete and then restore using the instructions in the article. Sometimes recovery mode timeouts and returns to disabled before the firmware download is complete.

- Then try on another computer

Could the message been this?

Update Server

Try:

- Powering off and then back on your router.

- iTunes for Windows: iTunes cannot contact the iPhone, iPad, or iPod software update server

- Change the DNS to either Google's or Open DNS servers

Public DNS — Google Developers

OpenDNS IP Addresses

- Try on another computer/network

- Wait if it is an Apple problem