Well I have had my iPod for just only 2 weeks, and have been plagued with hangs while installing applications, only to have to reset the device (holding Power/Home for 5 seconds) several times a day.  To the point, it just no longer would boot up, and sat just at the Apple Logo.  So digging around I found out how to restore your iPod Touch to the factory default... and for me, it restored to my already purchased 2.0 version of the iPod.

You could always try restoring your iPod to factory settings:
1) Press and hold both the Home button and the Power button for a couple of seconds. It should reboot and show the Apple logo. Do not let go.
2) When the logo comes up, release the Power button. You should only be pressing the Home button now.
3) After one or two seconds, the original image that was presented on the iPod when you turned it on for the first time will show up: the iTunes logo with a sync cable underneath it.
4) Connect the iPod to iTunes. It will ask you to restore the iPod. Say yes and begin the whopping 150MB download for the iPod restore app.
5) Wait a couple of minutes until it does it's thing, then rejoice.
PS: I suggest you get yourself a drink and a snack while it downloads and while it installs.
Good luck!

Originally posted by Ramcosca on discussions.apple.com