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Locked iPod?! Here's how to sort it...

How To Reset The iPod Screen Lock Password Combination
Delete the file _locked in the iPod_Control/Device directory of the iPod disk. Next, you need to restart your iPod. (Hold down the Menu and the center button and wait for six seconds.) When the iPod restarts, select Extras » Screen Lock » Reset Combination from the menu. The iPod will then allow you to enter a new password. Some sites suggest that the _locked file be renamed or its content be erased. This step is not required. Apple also suggests that you "restore" (format) the player as an alternative. That is also not required.