ITunes "drops" recognition of iPod Touch in the middle of restore

Hi. I have been attempting to restore my iPod on my PC (Dell Inspiron 6000 running Windows XP). It had issues in the middle of an iOS software update and went into restore mode. I plug in my iPod and it displays the connect to iTunes screen. iTunes recognizes it as "iPod" and a message pops up that says I need to restore my iPod. I click "restore" and it says it is "Extracting Software". At some point in the middle of this step, iTunes stops recognizing my iPod. It contines with the "extracting software" step, but at the end of this step it gives me an error message saying "The iPod 'iPod' could not be restored. The device cannot be found". When I click "OK", it immediately recognizes my iPod again and goes back to the initial restore screen. I have followed all steps in support pages including updatinge iTunes to latest version, checking my usb cable, restarting the Apple Mobile Device USB Driver, updating the driver, uninstalling and reinstalling the driver and finally uninstalling iTunes and all its related components and reinstalling. I have also tried disconnecting and reconnecting the ipod during the "Extracting Software" step to see if iTunes will re-recognize it. Please let me know whether you have any insight into my issues. Thanks!

Did you also check your security software settings? iTunes has to be able to contact Apple during the process:
iTunes for Windows: Troubleshooting security software issues

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