Warning: This should be used as a last resort, restoring will erase all of your data

*Must have iPod plugged into computer while doing this*

Be patient, the force restore part may take up to 20 seconds.

1. Press and hold the home button and the sleep/wake button. (the power off option will appear, ignore it)
2. When the apple logo appears let go of the sleep/wake button (keep holding the home button.)
3. After a few seconds you should see the connect to iTunes image (you can now let go of the home button.)
4. Open iTunes .
5. iTunes should automatically recognize your iPod once the image comes up, if not unplug your iPod and plug it back in.
6. Restore your iPod by clicking the "Restore" button.

****If iTunes comes up with an error you may want to see the following link****

http://docs.info.apple.com/article.html?artnum=30700


Alternate Method 
Really easy way to do it...

1.Make sure iPod is completely powered off.
2.Hold the home button while its off.
3.While holding the Home button, connect the cable. The iPod should power on.
4.Keep holding the Home button.
5.The Connect to iTunes image should come up.
6. Congrats, you in recovery mode.