ITunes goes into a loop when trying to access the purchase history

Today I was trying to buy a song, when iTunes required me to login due to a previous billing problem. I entered my email and password, and 5 second later it asked me to enter them again in order to view my purchase history. And again, and again.
I started an http(s) proxy and here's what's happening..
iTunes requests
https://buy.itunes.apple.com/WebObjects/MZFinance.woa/wa/com.apple.jingle.app.fi nance.DirectAction/purchaseHistory?xToken=OMMISS [...]
and the server answers in xml...
<!DOCTYPE plist PUBLIC "-//Apple Computer//DTD PLIST 1.0//EN" "http://www.apple.com/DTDs/PropertyList-1.0.dtd">
<plist version="1.0">
     <dict>   
         <key>failureType</key>
         <string>5007</string>
         <key>customerMessage</key>
basically it displays a message which asks me to enter the password. When I enter it, the server answers again with error 5007...
so, what exactly is a "5007" failure?

Deggie,It turns the iTunes on and it gives me the following messages:
You have an Ipod that needs to restore. do you want to restore? I click yes...
Your iPod was restored... wait till it appears on the screen. - It does not appear...
iTunes need to recover you iPod, pls let it connected.... I do continue...Then it says,
iTunes detected an iPod in restore mode... You need to restore it to utilize it with iTunes. - I do OK.
It shows the following screen:
I do restore.
And it goes over and over again...

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