3rd gen iPod won't update or restore with iTunes 7

Question

Ok, so my iPod has been kinda messed up for a while... it's getting a little older, and the battery is pretty much shot. During my last attempt at getting the iPod to sync with iTunes (a few weeks ago), I somehow managed to get it into disk mode, and I don't know how to undo it.
Ok so that's one problem, but I don't know if that's affecting my iPod now or not.
I have just recently--within the last couple of days--started trying again to fix my iPod. I've been looking at the support site, following any instructions I can find, and to no avail. Unfortunately, the time I decided to start working on my iPod was the same time the iTunes update came out, and from what I hear, people have been having many problems with iTunes 7 and iPod updater 2.0.
I hook my iPod up to my computer, iTunes recognizes it--which is an improvement over the last version of iTunes, which didn't know my iPod existed--and the first time, it tells me the iPod is corrupted and need to be updated or restored. So I hit ok, then click "restore." It goes through the motions of restoring, then tells me it has restored, that it will then restart, and then show up on the "sources" list in iTunes, but it never shows up. The iPod itself says "OK to disconnect," and shows NO sign of restarting. I disconnect and reconnect my iPod, and then iTunes tells me the iPod is in "recovery mode" and needs to be restored. Same deal. Says it's restoring but nada. Now it does that same thing everytime I connect it.
Is it just that my iPod is completely shot? Or is it because I'm trying to update it with a shotty version of iTunes? I'm stuck. Can someone PLEASE help me?!

Answer 1

Well, stopping the iPodservice didn't make any difference. Apparently the iPod is so shot that iPodservice wasn't doing anything anyway, so it formatted fine even with iPodservice running.
So here's the deal. I have been able to format my iPod. I've already done that. It's completely erased, formatted, redone, everything. But it will not restore in iTunes. Using iTunes 7, it shows up in the source list, but iTunes says it has found an iPod in recovery mode that needs to be restored. So then I click restore and it says it has restored, but it doesn't do anything. Just goes to an OK to disconnect screen. Unfortunately, I don't know if this is just an iTunes 7 issue or not, because my iPod doesn't even show up in any other version of iTunes.
I tried many different things... when I restart my iPod and it isn't connected, it goes to the Apple, but then it comes up with the folder and exclamation mark icon, while the disk is whirring away. When I restart it while it is connected, it restarts, and iTunes says the same thing about the iPod in recovery mode.
I tried putting the iPod into diagnostic mode, as is suggested in the intermediate steps in one of the posts, but because I can't even restart the iPod, I can't put it into diagnostic mode.
I even tried what appeared to be the miracle fix for everyone's iPods--hitting it on the desk on its upper right corner. No such luck. I think my iPod is shot... and I just realized how much it costs to send yours in and get a replacement refurbished iPod... It's just not worth it... but then again, it seems like it's probably not worth it to get a new iPod now, either, since none of the software seems to be working correctly, and since I seem to have bad luck with electronics... maybe I'll wait until Microsoft comes out with their new media player... I should definitely be looking into something other than an iPod, since they obviously suck right now.