Two other options:
1. While computer on, disconnect IPod. Reconnect. It should give some message like:
"IPod was not disconnected in proper way. Do you want to scan it for errors?". Say Yes.
If that doesn't help, and you have everything backed up on your computer...
2. Open ITunes, click on your IPod, and in right pane, you'll have "Restore" button, which upon clicking will restore IPod to the original state.