Ipod Classic 160gb firmware keeps reseting to factory settings

Model:mc293
Version:2.0.5
My songs started jumping and skipping on my ipod so i tried to update it with itunes but it was the latest version, so i pressed eject and unplugged it, the ipod said i had no songs on it but in the place where you can see how much space is used i could see my music was still there.
This problem didn't go away so i tried restoring to factory settings through itunes and after it completed the ipod rebooted, the screen flashed white and a itunes error message popped up saying the ipod was corrupt and needed to be restored! Behind itunes i noticed another window had popped up from windows saying my ipod needed to be formatted.
I closed itunes and reformatted with the default settings and it finished fine and the memory indicater said i had 148gb free of a 148gb which is what it was meant to say, i start up itunes and i got the same message from itunes saying it is corupt and needs to be restored... so i restore it and it restarts, screen flashed white and the same message pops up along with the windows message saying it needs to be formatted.
Here is what i have tried so far:
Using the ipod on another computer
Using an earlier edition of itunes
Tried restoring the ipod with an earlier firmware version
different usb ports/ipod connectors
I've also tried all of the above in disk mode
I can navigate through the ipod when its not connected with no problem but even though it is empty the memory on the ipod says 0kb free and every time the ipod restarts itself either by itunes eject or me reseting it the screen flashes white for a second and i'm back to the language selection menu and all settings have reset.
I can also use the ipod as an external storage device with no problem.
What is happening to my ipod and how can i fix it?
I don't have the money to buy a new one or pay the bill to have someone look at it so any help on this would be greatly appreciated.

Hello Sparkysun,
Thanks for using Apple Support Communities.
From your post, the issue appears to be indicative of a hardware issue.  The support link below explains your service options:
Apple - Support - Service Answer Center
http://support.apple.com/kb/index?page=servicefaq&geo=United_States&product=ipod
Take care,
Alex H.

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