I booted mine up in Disk Mode and it was recognized. Also, you may try reformatting in Disk Utility and booting it into disk mode.
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I had the same problem with mine! So, I booted it up in Disk Mode and it was recognized. If that doesn't work, you may try reformatting in Disk Utility (Which is an app on your Mac in your Utilities folder) and booting it into disk mode. If that doesn't work, try ejecting and reconnecting it a few times. One last thing you could try is - while it's plugged in, lightly knock it against your hand on the left side of the iPod. I've found that this helps when mine is stuck.
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How to boot into Disk Mode: http://support.apple.com/kb/HT1363