Help!! Ipod touch won't allow me to get into it

So where to begin with my ipod problems, first off i tried to update my friend's ipod because it was acting funny. I tried to restore it and it worked but i can't get into it. It tells me to connect to itunes but once i'm connected all itunes says is that "IPOD" and that is it. i've restored it again, read many many itunes articles tried everything but it still won't allow me to bypass the "Connect to Itunes screen. the only thing i can do is take screen shots of the "Connect to itunes screen", restore it (Done that more times than i can count on my fingers) and turn it on and off successfully.

Ipod 2gen
Ios 4.2.1
Itunes 10.6

 

Does my Itunes need to connect to the internet to reload the software if that is what you are refering to?