How to restore your iPod:
1.Make sure you've reinstalled the latest version of iTunes.
2.Open iTunes, and then connect your iPod to your computer.
3.After a few moments, it will appear in the Source list in iTunes.
4.Select your iPod in the Source list and you will see information about it appear in the Settings tab of the main iTunes windows.
5.Click the Restore button. You will be prompted with one or more restore options that may prompt iTunes to automatically download of the latest iPod Software. The 4 possible restore options are:
Restore Option 1: Restore - Restores with same iPod Software version already on iPod.
Restore Option 2: Use Same Version - Restores with same iPod Software version already on iPod even though a newer version is available.
Restore Option 3: Use Newest Version - Restores with the latest iPod Software on your computer.
Restore Option 4: Restore and Update - Restores with the latest iPod Software on your computer.
6.A progress bar will appear on the computer screen indicating that the first stage of the restore process has started. When this stage is completed, iTunes will present a message instructing you to leave iPod shuffle connected to computer to complete restore process.
7.During the stage 2 of the restore process, a green LED will flash once on iPod shuffle, then amber and green LEDs will flash briefly, and finally the amber LED will begin to flash continuously. It is critical that the iPod shuffle remains connected to the computer during this stage.
8.After stage 2 of the restore process is complete, the iPod Setup Assistant window will appear asking you to name your iPod and choose your syncing preferences similar to when you connected your iPod for the first time.
Warning: Remember that a Restore erases all of the songs and files on the disk, but since it can't be used right now... it couldn't be worse.