2nd gen. iPod -software too old but will not update or restore HELP!!

Please Help! I've followed all update protocol and itunes 7 is installed, up and running etc, but..
I hook up the ipod and this message appears:
Some of the items in the iTunes library were not copied to the iPod "Kit-Ying's iPod" because your iPod software is too old.
I go to the summary tab in iPod preferences and click Update to get the latest iPod software update.
I'm looking in the summary and it says 'your iPod is up to date' (so the update button cannot be highlighted)
The only other option is to click on the "restore" button, which I've done
over and over again... Only to get:
'contacting the iPod software update server'
And nothing happens.
I cancel and then get this message:
"there was a problem downloading the iPod software for the iPod "Kit-Ying's iPod". The requested resource was not found.
Tried manually restoring the thing and as soon as I hook it up again the
same message appears (software too old etc)
Am I missing something here as I feel I'm going round and round in circles!!
PLEASE help me!!!
ibook Mac OS X (10.3.9)

hmmmmm.
Some of the items in the iTunes library were not copied to the iPod "Kit-Ying's iPod" because your iPod software is too old.
in your "Summary" page, is itunes displaying the correct icon for your ipod?
is a Movies or Photos tab appearing there?

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For those don’t know how to open Services, Start -> Run -> “services.msc”
http://img214.imageshack.us/img214/6200/automaticservicesec2.jpg
http://img216.imageshack.us/img216/3700/manualservicesce3.jpg
-If anyone know the specific services required to be turned on, please reply in this thread.
-I am using the 2nd Gen Nano 2GB version with latest iTunes.
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2nd gen. iPod -software too old but will not update or restore HELP!!

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