Yes, restoring the iPod will delete everything on it. If you want to do it though, it's done through iTunes/Music, or if you're running catalina look at the device in finder and there should be an option.
That's an original model iPod touch so it can't be on anything past iOS 3.1.3. iCloud lock won't be a possibility so that's good. Just restore it and you can use it once more. I'm not sure if there are any older exploits to allow you around the passcode on that version of iOS, it's possible as it's quite old and easily jailbroken etc. You can also downgrade to 2.x or even 1.x on those if wanted. But your data is likely not going to be able to be saved.