iPod iPod touch connecction Issue

I bought an Ipod touch for my daughter for Xmas and I am trying to set it up for her before we wrap it. It can see my home network and even connect to it (with a little check beside it) but under DHCP there is no update on the IP and when I try to renew the lease it doesnt give me anything. Same thing with Forgetting network. I have tried to reset router, modem and even removed encryption from router. I have tried everything I know to do. I even reset the Ipod. Any suggestions?

Any ideas? Anybody?