Ipod Touch Recovery Mode Loop - Error Code 14

I attempted to update my Ipod Touch (3rd Gen 32 GB) to the latest firmware (IOS 5 i think). It froze during the process and has since been stuck in a Recovery Mode loop. I have followed all recommendations on their website, called Apple support and re-installed all Apple related software, and even been to the Genius Bar in our local Apple shop, and it still broken!! They said that as it was out of Warranty (six months) and had a 'Hardware fault' i could buy a replacement for £120. I tried to argue with the shop staff and higher level customer support staff on the phone that my Ipod was working just fine before attempting to update the firmware so how could it be a hardware fault??
Is it just me or the fact that as soon as the one year warranty is up, Apple expect you to replace your faulty item with a new one. So much for good quality goods, can we expect Apple products to last just over a year and then be expected to buy a replacement!!
Isn't the fact that i have been offered a new Ipod Touch 32GB for only £120 pounds an admission that the product has some fault issues??
Anyone else in this position?
Any ideas how to fix the problem?
Anyone else disappointed with Apple Customer Support?

From the article cited at the end of my post:
Error 6: All of the steps in this article apply to resolve this issue. Following iTunes for Windows: Troubleshooting security software frequently resolves this error. There may be third-party software installed that modifies your default packet size in Windows by inserting a TcpWindowSize entry into your Registry. If your default packet size is set incorrectly it can cause this error. Contact the manufacturer of the software that installed the packet size modification for assistance.
http://support.apple.com/kb/TS1275

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