Hey, this allowed me to SSH into my iPod Touch and pull out any files I needed, even app/game saves, when I was in a Recovery Loop and couldn't use my iPod. But this also fixed the Recovery Loop too, after following the instructions below, use Tiny Umbrella to try kick the iPod out of the Loop, or go ahead and try restore with iTunes. Not sure if you're on PC or Mac, I've only done this on a PC myself, but I'm sure there is Mac versions or alternative software.
Download Putty:
http://www.chiark.greenend.org.uk/~sgtatham/putty/download.html
Download WinSCP:
http://winscp.net/eng/download.php
Download SSH_RD_Rev03B.jar:
http://www.sinfuliphone.com/showthread.php?p=781514
In that link it mentions about needing to install 'JRE-7-Windows-i586-iftw.exe' for it to work, but you can try without it to see if it works.
Follow the instructions here to get access into your iPod (even if you don't want to backup files, see if the mnt2 folder shows, if not follow the next step):
https://github.com/msftguy/ssh-rd/wiki/Windows-How-To
If /mnt2 doesnt show, restart the instructions for Putty, and after typing in the root and password, (before typing mount.sh), enter in:
fsck_hfs -r /dev/disk0s1s2
It will go through a repair, wait till its done, and mnt2 should work. Try restoring with iTunes or kick out of the Recovery Loop with Tiny Umbrella, hope it works.