i had this same problem, kept getting error 1417 or 1418 if attempted restore, found the answer on a different discussion. after you open itunes, and your ipod is recognized & it says there's another version would you like to update, go ahead and update. As soon as the ipod looks like it got disconnected & goes back to its main menu screen, press & hold MENU & SELECT buttons on the ipod. the ipod will power down & do some stuff, & should turn back on, then it will allow the update!!
i tried a bunch of things that didn't work, this MENU & SELECT business was quick & worked great!