1. Firstly, you must have the iPod Touch plugged into your computer while doing this.
2. To start, press and hold the home and sleep/wake button, the power off option will appear but ignore it. When the apple logo appears let go of the sleep/wake button but keep holding the home button.
3. After a few seconds you should see the connect to iTunes image (you can let go of the home button now).
4. Open iTunes and it should recognize your iPod Touch, if not unplug your iPod and plug it back in again.
5. Restore your iPod Touch by clicking the "Restore" button on iTunes.