Ipod Touch 2nd Gen Volume Issues

Alright, I JUST updated my ipod touch last night to the newest version update. Since that update my volume shows up on the screen as muted but the display will not go away. I go into settings to the volume settings and it disappears on that screen, but when I move the slider to the right it automatically goes back down again. I have tried resetting, and restoring as well as deleting some applications and none have worked. I have figured out that my speaker does work, and that plugging the ipod into the computer, as well as headphones does not fix the problem. I have also figured out by going to the youtube application that I can listen to music as long as I hold the volume button to the right, but the moment I let go it automatically goes down.
Now here is the kicker, a while back my Ipod fell into a cup of water, I pulled it out and riced it for a day. The sleep and volume buttons on the top and side of the ipod no longer work. Now prior to this update EVERYTHING worked fine with the exception of those buttons. I know a lot of people suggest holding down the sleep button, but that is not an option for me. So what suggestions do you all have?
Version: 4.2.1 (8C148) 
Please help me super super annoying. Is there a way to go back to the old version?

Yes it pould be caused by the sweat, especially if you are using the headphones with remote. SInce the remote can control volume.Sweat can mimic pressing the volume control. Even if you are not using the remote headphones, sweat could get in the headphone jack and activate the volume control.
Try the standard fixes to rule out a hardware problem:
- Reset. Nothing is lost
Reset iPod touch: Hold down the On/Off button and the Home button at the same time for at
least ten seconds, until the Apple logo appears.
- Restore from backup
- Restore to factory defaults/new iPod.

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