I had a problem with my Touch a few weeks ago, where I had to factory reset (holding down slider for 10-20 seconds to make sure it's off; press and hold home button while sliding slider once to switch on; let go of home button when white disco LED flashes). The first million attempts did not work. Most often I got the dancing squares that would go on forever (more than 20 minutes), but they should only last for a couple of cycles.
My point is, after three or four hours (!) of constant resetting, it finally worked. So don't give up! Just keep trying. Apparently not all factory resets are fully "factory" for some reason.
EDIT: If you do try the constant resetting game, make sure your battery stays charged, so have it plugged in for most attempts. Also, to speed it along, you can set a maximum number of minutes of square dancing allowed. Say, 5 minutes square dancing equals another reset! There's no point in waiting any longer. Good luck!
Last edited by Mrs_Often; 10-29-2012 at 04:58 AM.