In order to restore your iPod Touch, simply connect your device to your computer. Select your iPod touch when it appears in iTunes under Devices and click the Summary tab. Select the Restore option and when it asks you to, Back Up your device. iTunes should then ask you if you want to restore (Make sure you have a back up!) and it will wipe your device.
Once that's done, just Right Click on your device and select "Restore from Back Up" and let it do it's thing.
Good Luck !!