I forgot my passcode for my 5th gen ipod and it won't restore because the 'Find My iPod' feature is on. What should i do?!?!

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: Back up and restore your iOS device with iCloud or iTunes

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

If problem what happens or does not happen and when in the instructions? When you successfully get the iPod in recovery mode and connect to computer iTunes should say it found an iPod in recovery mode.

Place the iPod in recovery mode using one of these programs:

For PC

RecBoot: Easy Way to Put iPhone into Recovery Mode

If necessary:

Download QTMLClient.dll & iTunesMobileDevice.dll for RecBoot

and

RecBoot tip

RecBoot may have problems on 64X windows, then try:

Tenorshare ReiBoot – Enter & Exit iPhone, iPad, iPod Recovery Mode with a Single Click

For MAC or PC

The Firmware Umbrella - TinyUmbrella

Installs blootware on PC too

Next try on anoterh conputer since there may be problem with iTunes seeing the iPod