Eama Boss, try to place your iPod in DFU mode and then restore it. This should eliminate your password issues. "Getting your iPod Touch/iPhone into DFU mode is somewhat tricky, and it may require some patience/practice because timing is essential to get it to DFU mode and not into recovery mode.
1. First, Open up iTunes, plug in your iPod Touch/iPhone to the CPU's USB port. Turn on your CPU's speaker and make sure it is loud enough that you can hear it.
2. Hold down the Home button (located on the front bottom of your iPod Touch/iPhone) and the Power button (top left for iPod Touch and top right for the iPhone with the screen facing you) simultaneously, until the screen goes black and the device turns off. (past the red slider/slide to power off screen)
3. Now let go of the Power button, but continue to hold the Home button. Your iPod Touch/iPhone should have turned off and the screen should not be on.
4. After around ~10-20 seconds, you will hear a noise (beep/ding) from your CPU as if it had just recognized a new hardware device, now iTunes should recognize it in DFU mode.
5. After iTunes recognizes the iPod Touch/iPhone, let go of the Home button otherwise it will go into recovery mode and you will have to do the entire DFU process over again.
6. You will know when you have put your iPod Touch/iPhone correctly into DFU mode when the display is blank and that you do not have anything on your device.
And you are done, now you can install any iPod Touch/iPhone firmware on to your device via the iTunes SHIFT recovery method" from here. Hope this helps, good luck.