i myself do not know i pods much but i do know that it indicates that an HDD error occurred.
you might want to try to listen to the HDD before you do anything
If it sounds very normal,
Try reseating the HDD
or as other people mentioned replace the cable
If it sounds abnormal
if it sounds like it is straining to free itself to spin
try holding the iPod upside down and see if it works if you power it on
if this fails ***do this at your own risk***hold it to your waist and drop it
i don't remember why but it solved the problem for somebody
if you hear humming
your spindle motor is probably stuck , there isn't really anything you can do about that (really painful thing to happen )
if it has been exposed to where it could have fell or it has been dropped
though very rare your read/write arms could have crashed into the platter. not much recovery from that
if your hear trashing/scraping noises
i really don't remember what this means but it is probably dead
if it is squealing/screaming/squeaking, clicking
HDD heads are failing and there isn't much to do
but to attempt data recovery
###############################################################################if it isn't showing any sings of death , then yes try a restore
it however may not bee the HDD it could be something faulty between the hdd and whatever reads from it (better be the CPU if i am not mistaken) if possible if you suspect a failure like this open it up and inspect closely for any signs of scorches,corrosion,cold solder joints
this is all i would know
please report back