I have an old 3G iPod, and all of a sudden it would not show up in iTunes when connected to my computer via Firewire or USB. It did show up in Finder. After some research, the only way I found to fix this is to format it using Apple’s Disk Utility. WARNING: Doing this will wipe everything off your iPod. You won’t be able to recover the files off your iPod, but at least you’ll be able to use it with iTunes again.

1. Connect your iPod you to your Mac.
2. Open up Disk Utility (Finder > Applications > Utilities > Disk Utility).
3. Select your iPod in the left-hand window pane.
4. Click the “Erase” tab, accept all defaults, then click the “Erase” button.

Your iPod will now be re-formatted, and you should be able to plug it into iTunes and Restore the updated iPod software.

UPDATE: For PCs, you may be able to do something similar with Windows’ Disk Manager. I haven’t tried though, so I can’t verify, but I bet it would work on Windows too.