Just updated the new software now the backup will not install, any suggestions?

I just updated to the the latest software iTunes did a backup that said it was succesfull.  Now, when I'm trying to sync and install the backup it says it is has encountered an error and the install was not successfull.
Any suggestions on how I can do this or do I have to start it over as a new iTouch?

I would try placing the iPod in recovery mode and then try restoring from backup.  If not successful than, as you said, I would restore to factory dfaults/new iPod. For recovery mode see:
iPhone and iPod touch: Unable to update or restore

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