What concerns me on here is that you can not access the diagnostics mode. That is usually a pretty good indication that you might need a new logic board. But check on your HDD first. See if you can mount the iPod as a disk drive and if it is being recognized by iTunes. you do that by following Apple's directions " Toggle the Hold switch on and off (set it to Hold, then turn it off again.)
Press and hold the Menu and Select buttons for at least six seconds, until the Apple logo appears.
When the Apple logo appears, release the Menu and Select buttons and immediately press and hold the Select and the Play/Pause buttons until the Disk Mode screen appears.
Connect the iPod to your computer; the screen on the iPod will should say "Do not disconnect".
If you are having difficulty putting your iPod into Disk Mode, set it on a flat surface. Make sure that the finger pressing the Select button is not touching the Click Wheel. Also make sure that you are pressing the Play/Pause button toward the outside of the Click Wheel and not near the center. If you are still unable to put your iPod into Disk Mode, use one finger from one hand to press the Select button, and one finger from the other hand to press the Play/Pause button.
Make sure your dock connector on the bottom of the iPod is clean of any construction and does not have any bent or broken pins. Also, try to get a Zif-to-USB adapter (ebay has them for around $5) and see if you can access the drive without the iPod and format it. If you can't your drive will have to be replaced. Do not forget to replace the HDD cable, since it does have a tendency to internally break as well. If your hard drive is working independent of your iPod, the HDD cable is okay, and your dock connector and cable are working,you will need a new logic board Not a terribly expensive or complicated job. Let us know what you find out.