ITunes cannot restore, software update server can't be contacted

Question

Hello,
I received a 2008 iPod Classic hand-me-down from a friend, and wanted to format it and start using it.  I formatted the drive in windows, and now when I start iTunes (using version 10.6.3.25), I get the following message "iTunes has detected an iPod that appears to be corrupted.  You may need to restore this iPod before it can be used with iTunes.  You may also try disconnecting and reconnecting the iPod."  When I try to restore, it holds on "contacting the iPod software update server," and then tells me that the iPod software update server could not be contacted.
I have looked around for solutions, and tried quite a few of them.  I unchecked the boxes in internet options (automatically detect settings), deleted the itunespref xml file, used hostsxpert to reset the hosts file, and so on.  I still have the same problem.
So here I am, posting on the forum asking for someone's expert help.  Here is the little log that iTunes spits out for me:
Microsoft Windows 7 Business Edition Service Pack 1 (Build 7601)
Dell Inc. Latitude E6410
iTunes 10.6.3.25
QuickTime 7.6.9
FairPlay 1.14.43
Apple Application Support 2.1.9
iPod Updater Library 10.0d2
CD Driver 2.2.0.1
CD Driver DLL 2.1.1.1
Apple Mobile Device 5.2.0.6
Apple Mobile Device Driver 1.59.0.0
Bonjour 3.0.0.10 (333.10)
Gracenote SDK 1.9.6.502
Gracenote MusicID 1.9.6.115
Gracenote Submit 1.9.6.143
Gracenote DSP 1.9.6.45
iTunes Serial Number 0013B15C02821268
Current user is not an administrator.
The current local date and time is 2012-06-29 19:17:43.
iTunes is not running in safe mode.
WebKit accelerated compositing is enabled.
HDCP is supported.
Core Media is supported.
Video Display Information
Intel Corporation, Intel® HD Graphics
**** External Plug-ins Information ****
No external plug-ins installed.
**** Network Connectivity Tests ****
Network Adapter Information
Adapter Name:     {5C83B9AE-1000-400E-9F1A-461FC30E5093}
Description:     Sierra Wireless HSPA Network Adapter
IP Address:     10.206.45.36
Subnet Mask:     255.255.255.255
Default Gateway:     172.26.38.1
DHCP Enabled:     No
DHCP Server:
Lease Obtained:     Wed Dec 31 16:00:00 1969
Lease Expires:     Wed Dec 31 16:00:00 1969
DNS Servers:     172.26.38.1
172.26.38.2
Adapter Name:     {A5049D9A-3592-497F-9338-F17E467DB142}
Description:     Microsoft Virtual WiFi Miniport Adapter
IP Address:     0.0.0.0
Subnet Mask:     0.0.0.0
Default Gateway:     0.0.0.0
DHCP Enabled:     Yes
DHCP Server:
Lease Obtained:     Wed Dec 31 16:00:00 1969
Lease Expires:     Wed Dec 31 16:00:00 1969
DNS Servers:
Adapter Name:     {187896DE-CD26-4C34-8C69-1AC26BA1B5C4}
Description:     Intel® Centrino® Advanced-N 6200 AGN
IP Address:     0.0.0.0
Subnet Mask:     0.0.0.0
Default Gateway:     0.0.0.0
DHCP Enabled:     Yes
DHCP Server:
Lease Obtained:     Wed Dec 31 16:00:00 1969
Lease Expires:     Wed Dec 31 16:00:00 1969
DNS Servers:
Adapter Name:     {41C1267B-18A5-4CDA-8F3B-6D830F8BA001}
Description:     Intel® 82577LM Gigabit Network Connection
IP Address:     0.0.0.0
Subnet Mask:     0.0.0.0
Default Gateway:     0.0.0.0
DHCP Enabled:     Yes
DHCP Server:
Lease Obtained:     Wed Dec 31 16:00:00 1969
Lease Expires:     Wed Dec 31 16:00:00 1969
DNS Servers:
Active Connection:     LAN Connection
Connected:     Yes
Online:          Yes
Using Modem:     No
Using LAN:     Yes
Using Proxy:     No
Firewall Information
Windows Firewall is on.
iTunes is NOT enabled in Windows Firewall.
Connection attempt to Apple web site was unsuccessful.
The network connection timed out.
Basic connection to the store failed.
The network connection timed out.
Connection attempt to Gracenote server was successful.
The network connection timed out.
Last successful iTunes Store access was 2011-10-13 11:43:25.
**** Device Connectivity Tests ****
iPodService 10.6.3.25 is currently running.
iTunesHelper 10.6.3.25 is currently running.
Apple Mobile Device service 3.3.0.0 is currently running.
Universal Serial Bus Controllers:
Standard Enhanced PCI to USB Host Controller.  Device is working properly.
Standard Enhanced PCI to USB Host Controller.  Device is working properly.
FireWire (IEEE 1394) Host Controllers:
Ricoh 1394 OHCI Compliant Host Controller.  Device is working properly.
Most Recent Devices Not Currently Connected:
iPod (5th generation) running firmware version 1.3
Serial Number:     JQ546KG5TXL
**** Device Sync Tests ****
No iPod, iPhone, or iPad found.
Thank you in advance for your help!
Pat

Answer 1

Ok, I've got it all figured out, and wanted to leave a note here for posterity.  Here's what I did.
After reading all of planb77's excellent suggestions and going through the links he sent, I decided to look at other aspects of iTunes and see if the problem was not limited to restoring my iPod.  When I found that my iTunes store didn't work, I checked the forum for those issues, and found that AT&T Communication Manager was a common culprit in working with iTunes. 
After 70 minutes on hold and a fruitless hour on the phone with AT&T trying to uninstall bytemobile optimization client, I left the AT&T guy insisting that it was not AT&T's problem, but rather Apple's. 
I then looked further into bytemobile and iTunes, and found an elegantly simple solution, written in all caps: https://discussions.apple.com/thread/3888541?start=0&tstart=0.  You'll see it there.  To spare you the link change, the advice was to uninstall iTunes 10 and everything else apple-related, download and install iTunes 9.2, find and delete the latest "itunes library.itl", and run your new iTunes.  It solved my problem of restoring my iPod, and, incidentally, allowed me to access iTunes store.  So there you have it.  Problem solved.
planb77, thanks again for your persistence.  While you didn't solve my problem, you eliminated many of the other possiblities, and led me to some other links.