Looks like it has iPhone firmware on it. Did you upgrade to OS 3.0?
Or you could try: Press and hold the Sleep/Wake button on top of iPod touch for a few seconds until a red slider appears, then drag the slider. Then press and hold the Sleep/Wake button until the Apple logo appears.
When you put it into DFU mode and plug it into the laptop (I assume this is how you are restoring it as it won't connect normally) does it still come up as a iPhone? If so, you'll need to get the 3.0 iPod touch firmware manually if you are indeed installing the iPhone firmware.
Is it like a normal iPod touch when you use it though? I don't see how the iPhone firmware would get onto your iPod...
I took it to Apple today and they told me to reinstall iTunes. Well I did, but when I plugged it in the error didn't show up. Instead, it reads it as an iPhone. My iPod touch is updated. What should I do now?