I am having similar problems. I have an 3rd gen iPod of the iPod "dock connector". I also replace the hard drive and when my new drive came I used disk-utility to change it to Mac os Extended. I think that is what is supposed to be. My iPod needs a firewire cable to restore but I always get an error 1429. If i use disk utility and the firewire cable to reformat the drive it takes days. If i use an USB cable to format the drive it takes minutes. I have been able to get it to go all the way through the restore using a combination of reformatting and restoring and switching cables (usb and firewire 400). I need help too.

I was really hoping for someone to hack one of these before the iPad was even announced. I wanted to see someone cram 2 iPod touches into there.