Nothing I tried fixed this problem, including resetting and restarting
until I did this:
1- Go to the Brightness screen in Settings, change slider to under 20% and click OK (center button)
2- Press Play for 10 seconds or so until iPod powers off
3- Press Play again to wake it up
4- Go to Brightness again and slide it close to max anc click OK
Voila, it's back to full brigthness!