IPod touch 3G - activation required, will not sync properly, freezes up windows 7

Hi,
I am having a lot of trouble with my iPod touch 3G.
     I had not synced my iPhone 4 and my iPod touch for about a month as I was re-inputting my music into iTunes - I didn't want to sync them when not all the music I wanted would be synced onto them. Prior to syncing the devices, one day my iPod randomly displayed the "activation required" notification and the "connect to iTunes" screen. Neither my iPod nor my iPhone is jail broken, so this cannot be the cause of the deactivation. All I use my iPod for is plugging into my stereo system.
     Regardless, I had finally managed to sort through all my music and had managed to sync my iPhone with no hitches. However, I ran into various issues with the iPod. A pop-up in iTunes said that it detect the device but could read it and that I would need to restore my iPod. So I did so (restored to the back-up). However, not even a third of the way into the restore everything just seemed to stop. My screen went black with only the mouse flickering. I restarted my computer and tried restoring it again (again to the back-up). It got further this time and actually managed to sync some songs (around 70 out of 850). However, a pop-up appeared saying that iTunes could not write from the song or disk. So I unplugged my iPod and plugged it back in and it immediately slowed down my computer. Chrome would not respond, Shockwave crashed, iTunes would not respond, etc.
     Anyways, over the past couple days I have tried restoring the iPod (to factory settings) and that seems to have worked. I no longer have the constant "activation required" notification. iTunes seems to be having trouble syncing though. It will get a couple more songs synched and then display another pop-up saying that it could not write from the song files and then the synching process just gets stuck. The iPod no longer displays the synching icon, but iTunes remains stuck on "finishing sync".
(The problem cannot be with the songs as they sync perfectly fine to my iPhone).
     On my iPod it shows all the songs which are/should be synched onto it. The synched songs appear in black (like normal) however, the majority of my songs are in a light grey and cannot be selected or played (basically it has the information about the song, but not the actual file itself). I can also use Wi-Fi or Bluetooth. They are both greyed-out and say "No Wi-Fi" or "Unavailable" respectively.
     Just as a note, I am on Windows 7 and have McAfee Antivirus Plus. I know that some people have some issues due to the firewall but I unsure as to how this could be the cause when my iPhone syncs perfectly well under the same conditions. I have iTunes 10.7.0.21 and my iPod is running on 5.1.1. If you need any additional information please ask!
If someone could please help, I would be extremely grateful! I'm at my wits end.
Thanks!

See if disabling the antivirus and firewall resolves the problem.

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