2nd Gen iPod Nano - Impossible Restore

I recently bought a used 4gb 2g nano and had it working fine. Forgettiing that it needed itunes 7 to work, I formatted it in hope it would would with itunes 6.
Remembering this, I had to install itunes 7, bringing me to my problem...
When I try to restore the iPod, it loads saying "Connecting to the..." and asks if I want to restore. I click yes and it says again "Connecting to the...", but after maybe 10 seconds or so it says "There was a problem downloading the software for the iPod "iPod". The network timed out."
It does this every time I try. I've even tried reinstalling itunes 7.
So I am now stuck with a useless nano.
Ideas?

You might be getting a conflict from another USB device and/or network device. Try connecting just your iPod, (and keyboard and mouse), and disconnect from any network you might be on and try again to Restore it. You might also want to download and reinstall iTunes.

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