I've had an identical error. The ipod touch screen showed a graphic of the lead connecting to itunes and wouldn't move beyond that point. I plugged the pod into a second computer and that brought up a message saying it was in recovery. It proceeded to reset the pod - but only on the third attempt. I've lost the January software update and have asked Apple, via the itunes 'report a problem' link, for advice on how to recover the software without additional expense.

Previous software upgrades were uneventful. I will be cautious in the future and wait a few days until issues like this have been noted and resolved.