If you haven't sent it back yet, there is one more thing to try:
- Turn the device off by sliding the power switch to the right and holding it for 10 seconds. DO NOT skip this. Even if you already think it is of, do this anyway.
- Hold the Home button down and push something into the pin hole in the back. Make sure you feel the button inside the hole click and then release it.
- Keep holding the Home button until the light flash. Or at least 10 seconds.
This resets the Touch in a different way than the Home button plus power switch. It seems to work in circumstances the other doesn't.