IPod Touch 2G, WinXP SP2, iPod stuck in limbo (can't get it to restore)

Hi.
While trying to install the latest iPod Touch software update, error 1602 was displayed.
At first we tried to restore the iPod; no luck. Then exited iTunes and restarted the PC.
PC does not recognize the device, and cannot find the device driver, since the error popped up.
(Note: the PC account used for the download/install is NOT the Admin account.)
When attempting to go into restore mode on the iPod, the screen does blank out,
then shows the Apple logo, but this is followed by a picture of "Connect to
iTunes" message. Unfortunately, iTunes does not see that there's a device
attached (nor does WindowsXP).
As stated in the Subject, we are on WinXP SP2. Apple suggests SP3 (didn't know
that when we started).
1) Is SP3 absolutely required? Can we install the update on the iPod without
updating the PC?
2) How do we break out of the "Connect to iTunes" screen on the iPod?
(Saw a posting for DFU mode, but didn't want to go down that path
until absolutely necessary.)
3) Suggestions on how to get WinXP SP2 to recognize that there is a
device connected?
4) Is iTunes 10.1.1 required for the iPod update and does 10.1.1 require
WinXP SP3? (I think we're one version before 10.1.1 on this PC.)
Please advise.
Many thanks.

ERROR (1)
- Place the iPod in DFU mode and then restore
How to put iPod touch / iPhone into DFU mode « Karthik's scribblings
- Try on another computer
- Try another cable
- Also, confirm your security software and settings are allowing communication between your device and update servers.
- If still not successful that usually indicates a hardware problem and an appointment at the Genius Bar of an Apple store is in order.
Apple Retail Store - Genius Bar

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IPod Touch 2G, WinXP SP2, iPod stuck in limbo (can't get it to restore)

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