IPod recognized, but restore is no good

My girlfriend has a brand new iPod straight out of the box, and I am trying to set it up for her. She already tried to install it on her work computer, but wasn't allowed to download the updates.
When I turn on the iPod, says "Connet to your computer. Use iTunes to restore". When I connect to iTunes, it tells me that it is in recovery and I need to restore it. I click on restore, and everything seems fine. Then iTunes tells me that it has detected an iPod in recovey and I need to restore it. I click on restore...I have done this about 10 times now. I have also reformatted the disk, and I have tried to manually reset it (hold on/off, push "menu" and center buttons).
Is there hope or do I send it back to Apple?

The document you posted seems exactly like my problem. However, changing the drive name doesn't seem to correct the problem.
I changed the drive name to I:, then restored -- same story. Then I changed it to G:, then restored, then reformatted (by running format g:/FS:FAT32/Q -- got that from another board post). Then I restored, and I still get the same message everytime. Am I maybe reformatting wrong?

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    <hr>
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    <hr>
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    <hr>
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    <hr>
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