I would try removing Itunes and then installing it again and when you have a fresh copy of 7.6 installed and a reboot of your computer do the following.
1. Turn iPod Touch OFF completely.
2. Plug iPod Touch into PC/MAC while still off.
3. Turn iPod touch on, then IMMEDIATELY do the following steps
4. Hold the 'Home button' and 'sleep/wake' button together for atleast 5 seconds.
5. The Apple logo will appear
6. When this happens release the 'sleep/wake' button BUT KEEP HOLD OF 'HOME' BUTTON
7. Your iPod will reboot (Apple logo)
6. iTunes will recognise iPod in 'Recovery mode'
8. You will be able to 'restore' your iPod Touch now.
