Q: 5th generation ipod touch stuck on DFU mode, won't restore or update.

What do I do about this, why would the update be offered to me if the device is ineligible ?

I followed the directions you posted about making a new host file. Going to try to update / restore my ipod now. Will post back with results, thank you.

During the update the ipod disconnected, stopped updating and i'm back to the same " There is a problem with the Ipod "ipod touch" that requires it to be updated or restored." message :/

EDIT:

Then i got the error message:

"The ipod software update server could not be contacted. An uknown error occured (1671)."

I've tried all of the steps in the page the "more information" button leads too which is this:

Resolve iOS update and restore errors in iTunes - Apple Support

Just tried, got the error " there was a problem downloading the software for the ipod, an unknown error occured (-39)

Tried again on the alternate computer, the update was completed but no changes were made to the ipod. i tried turning it on and it went back into DFU mode.