First, I recommend [http://support.apple.com/en-us/ht1430|resetting your iPod Touch].
If that doesn’t help, I recommend [http://support.apple.com/en-us/HT201252|restoring your iPod to factory settings using iTunes]. Please make sure you have a backup before restoring your device.
If restoring your iPod Touch does not help, it may be indicative of a hardware problem. If you narrow it down to being a hardware issue, hopefully it is only a loose camera cable. [guide|3614|Use this guide to get to the front facing camera]. If checking the connection doesn’t resolve the issue, you may need to replace the [product|IF146-004|Front Facing Camera].