Try to unlock it and don't use a password ;-) here is my answer from a similar question How to I fix my disabled iPod Touch? Apple says "If you cannot turn off the device using the slider, press and hold the Sleep/Wake and Home buttons at the same time. When the device turns off, release the Sleep/Wake and Home buttons." Now there is a way to erase the password but I am not sure if this would work when you are already disabled. I guess you can always try and hope you have a windows computer :-) anyhow you plug in your iPod. Open My Computer (or Computer for Vista). Click on Folder options and enable to view hidden files. Next go to iPod_control and click on the folder named Device. If your iPod is locked, there will be a file _locked . Rename the file to _unlocked. Remove your iPod and it will be cleared, again not sure if it works for a disabled one. Just thought of something else. Make sure you have your library backed up.
Also check what Apple has to say about that on here http://support.apple.com/kb/HT1808
A restore on the other hand will return the phone to its default settings and YOU WILL lose all information. You should only do that as a last resort and only do it on the computer that you normally sync with. That way it should restore the last backup. Check on here for directions on how to do that.
The only other thing would be to put your iPod in DFU and restore, again YOU WILL LOSE all data since the last backup.
Connect your iPod to your computer
Turn your iPod Off
Press and hold the power button for 3 Seconds
While continuing to hold the Power button, press the home button as well for 10 seconds
While holding down the home button, release the power button for another 10 seconds
iTunes should now detect the iPod in recovery mode, press OK, and restore your iPod. you may now release the buttons. If you have not reached this point, then you have not entered DFU Mode DFU Mode Good Luck and I hope this will help.