power the ipod completely off and hold the home button only while connecting to itunes. Keep holding home button down on the ipod until you see a alert in iTunes "iTunes has detected an iPod in Recover Mode, you must restore this device". ( something like that). Then let go of the home button, click ok on the itunes alert, and then click restore;
It will put it back to factory settings, but you can always resync. No other option if the hard reset isn't working. If it doesn't give you the alert at first, retry the whole process again.