So basically the problem is that you cant enter the password right? Once you connect the iPod to the computer then it shouldn't ask for the password the home screen gets unlocked. Anyways you try this method and let me know if it works or not.
1) Go to My computer.
2) then open the iPod's drive. Check if you can see all the hidden folders in it. in case if you cant see them then go to the Tools, Folder Options, View Tab, and check on show option.
3) open up a folder named as "iPod_Control".
4) Now open the folder which is called as 'Device'
5) Some renaming stuff has to be done for "_locked" folder, "_locked" folder should be changed to "_unlocked".
Having done this your password problem will be solved.
Now connect the iPod to iTunes and then restore. Hope this helps.