How to Restore iPod Touch from lockout
To restore an iPod Touch from lockout or forgetting a password, pull up iTunes on whatever computer you are using. Plug the USB cord into the iPod touch and plug the USB cord into the computer. The iPod will say "locked out" or "access pass code" and the computer will says that it needs to be synched up to the original program. Hold down the top button and home button at the same time. A message will pop up. Ignore it and let the iPod turn off. Take your finger off the top button and leave your finger on the home button until full start off. It will say iPod in recovery mode. Press okay to restore it to the factory settings.