rj713 is of course absolutely right. There is a also another way to reset it without losing the data from your ipod :
first plug in the ipod, go to my computer, click on the ipod drive. Go to tools > folder options then click view. Click show hidden files,
Go to ipod_control, then go to device. There should be a file named "_locked" delete that. Now unplug the ipod and you should be ready to go
Good luck