IPod touch 5th gen won't restore

Hi
Brief background:
My sister got a new iPod touch 5th gen and decided to set a password on it, she then somehow managed to forget the password on the same day as she set it.
So I looked online (including on here) and it seemed I could just 'restore it' by putting it into restore mode (which I did successfully) and everything seemed to go as expected, until it had downloaded the restore file (iOS 6.0.1 I think) then computer said something along the lines "can't restore as password is on ipod" but all the website I see say that you just connect it up, put it in restore mode, and no matter what it will restore to original factory settings.
Am I missing something? Please help ASAP as she would really like it working again, and yes she has been told of for doing such a silly thing.
Additional information:
I have tired this 4 times, including one time just leaving it plugged in the whole time(instead of unplugging it when turning it off and plugging it back in when Turing it on [at start of recovery process])
It was disabled for 1 hour, have tired doing recovery process when disabled and when not disabled.
Both of the above still give the same "must enter password to recovery" type of message.
As brand new. iPod has not yet been synced with any computer, have tired Apples own ways for this and still get same type message.
Thanks a lot, hopefully there is a solution, or something (preferably simple) I am missing.

Place the iOS device in Recovery Mode and then connect to your computer and restore via iTunes. The iPod will be erased.
iOS: Wrong passcode results in red disabled screen
If recovery mode does not work try DFU mode.
How to put iPod touch / iPhone into DFU mode « Karthik's scribblings

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IPod touch 5th gen won't restore

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