Nope it works fine in 7.6, at least it did for me, the main problem people were having is that they were in the wring restore mode.
You will get error (1) if you try and restore it while the screen shows the connect logo, it will only work if itunes can see the ipod but the screen is off.
To get to this as mentioned before you have to:
plug in and have itunes on
hold down home and sleep together till the screen goes off
continue holding for about 6 seconds more then release the power button but keep holding home. you must release power before the apple logo appears.
if you do this properly the screen will not come back on but itunes will detect it, when it does you can release home and try the shift-click restore.
Finally got mine working so going ahead with the jailbrealk...