Hi Nichole81,
It sounds like the passcode cannot be entered becuase the iPod Touch is disabled. Usually this requires the device to be restored with iTunes which does erase all the data according to this article:
Forgot passcode for your iPhone, iPad, or iPod touch, or your device is disabled
If you had an iCloud backup, you can then restore from that backup:
iCloud: Restore or set up your iOS device from iCloud
In the Setup Assistant, proceed to “Set up your device,” tap Restore from a Backup, then sign in to iCloud.
Proceed to “Choose backup,” then choose from a list of available backups in iCloud.
After using an iCloud backup to restore or set up a device:
Your settings and accounts are restored from the iCloud backup you chose. Your device restarts and begins downloading your purchased music, movies, TV shows, apps, books, photos, and other content. If your device can’t download the version of an app that was backed up, it downloads the latest version.
Your purchased content is automatically downloaded from the iTunes Store, App Store, or iBooks Store based on iTunes in the Cloud availability by country. Previous purchases may be unavailable if they have been refunded or are no longer available in the store.
You may be asked to enter passwords for iTunes Store, App Store, and iBooks Store accounts to restore purchased items.
Progress bars appear below Home screen icons for apps being downloaded.
To make an app a priority for downloading, tap its icon.
To check if the information on your device is fully restored, go to Settings > iCloud > Storage (Settings > iCloud > Storage & Backup on an iOS 7 device).
If you subscribe to iTunes Match, you can download your songs, albums, and playlists from iCloud after other information on your device is fully restored.
For information about messages that may appear while restoring information from an iCloud backup, see the Apple Support article If you need help restoring an iCloud backup.
Thank you for using Apple Support Communities.
All the very best,
Sterling