Need Restore Help!!

I updated to 3.1.1 on my ipod 2nd gen. Touch (never should have done it). Now when Touch powers of (goes into sleep or turned off for more than 30 seconds)cannot turn back on (have to hold power and home keys for ten seconds--all saved data is lost). If plugged into itunes when ipod is on, sync is fine. When plugged in after power off itunes says "ipod is in restore mode and needs to be restored". It is a constant loop. Itunes is up to date with version 9, and roughly fifteen attempts to restore and/or make ipod new does not fix problem. Is this a software prob. or hardware? Ipod was FINE before I paid ($4.98) now its virtually unusable. Help.

THis should solve your problem. Pay attention to the IPOD Service Running part. If this is not corrected then your Updater will not work: Here's the link..
http://docs.info.apple.com/article.html?artnum=93716

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