That's standby.
I only have an iPhone, so I assume it's the same for the iPod touch.
Open the Clock app, then tap Alarm. Tap Edit in the top left corner. Tap the alarm you wish to modify. Set it for about 3 minutes from now. Verify that you have a sound selected for the alarm. Press Safe, then turn the alarm On.
If this doesn't work, try restoring it in iTunes.