Keep trying
I was stuck here yesterday for 20 mins or so. Here's a thread about the problem:
https://forums.macrumors.com/threads/369109/
And also the following is from the TouchFree thread by planetbeing:
NOTES ON RESTORING
------------------
You can restore at any time during or after the jailbreak process. Your iPod will be in a fresh, un-jailbroken
state.
If you're having trouble restoring your iPod, first put it into recovery mode:
- Disconnect your iPhone from your Mac or Windows computer.
- Press and hold the sleep/wake and home buttons simultaneously for about 20-30 seconds,
until you see a yellow triangle with an exclamation point in the middle accompanied by
the text "Please Connect to iTunes."
- Now try to restore with iTunes.
If you're still having trouble, a reboot of your computer is often helpful.
I end the iTunesHelper.exe process, which is responsible for launching iTunes whenever an iPod is connected. So if you connect your iPod and iTunes doesn't appear and sync as always, just open iTunes yourself and tell it to sync. It should work fine. A reboot of your computer will restore the iTunesHelper.exe process.
I didn't have any luck holding both buttons down for 20-30 seconds, it just rebooted over and over....BUT after i did this I turned it off (held both buttons till screen went dark), THEN held both and let go of sleep and held home when apple logo showed, and after 10 secs or so I got the bloody "connect to iTunes' screen. It's very picky it seems.