2nd gen ipod touch sleep/wake button will not work

Like the title says, the sleep/wake button (top button) doesn't work on my 2nd gen ipod touch. In short, I can't put it into sleep mode (I have to wait the one minute), turn it off to save the battery, take screenshots, or even reset it (without iTunes, anyways).
I don't have any guesses on why it's not working. It just stopped working one day. I don't see water damage (via the water damage detector in the earbud jack), and I don't think I dropped it in a way that would harm it (unless dropping it on carpet counts).
I should also mention that randomly, one day after school, I was messing with it, and the button worked. I think the battery had died, and I managed to turn it on then. It worked for a few hours (I charged the battery), and then it went back to not working.
The warranty's up (and I'm broke), so I can't repair it. I also want to point out that the problem started not long after the warranty expired. What, at this point, is my best option? Should I just save up for the newest model? Or would it be cheaper and more efficient to save up just enough for a repair? Any other options I should consider?
Thanks in advance.

As I said, you can move on to Restore. Backup everything then Restore as New. Restoring from backup would just copy whatever software issue you may have. But it sure looks more and more like a hardware problem. Take a close look at the button to see if perhaps some dirt particles are stuck there.
You can also make an appointment with a Gnius at the nearest Apple store to have it diagnosed. Apple does not fix iPods, they just replace them with refurbished units, so it won't be cheap. Prices are here: http://www.apple.com/support/ipod/service/prices/
You can Google for third part repair hops or do-it-yoursel kits.
Good luck.

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