The same thing happened me quite a few times. With the usb cable unplugged try holding in the power button for about 10 seconds until the phone powers off completely, then quickly plug in the usb cable and press the home button. Make sure itunes is open.

Also if you ever install open ssh on your iphone this can cause it to pause on the boot screen. Just ssh into your iphone, disconnect and turn it off and on again.

Ever figure this out? I have the exact same issues and cannot restore it at all. DFU mode, multiple versions of itunes and IPSW's, etc... I've spent hours. It just boots and goes to the Penguin with iphonelinux.org under it.

put the phone in dfu mode and restore to apple original 1.1.4 fw with itunes 7.5
( reinstall itunes if possible ,delete the "itunes library.itl" file in music folder)

Put phone into DFU mode, that is, 1) power off. 2) have itunes open 3) press power & home button until itune pops up with check for updates, press check for updates. 4) Now you should be able to see iphone in itunes. 5) Use itunes to restore firmware of your choice. (you can use local image by pressing shift restore) Depending on firmware - all standard, latest firmware will put iphone into unlocked, unactivated mode.

Have the same problem now. None of the above advice works. Have tried dfu restore, tried different cables, different computers and different firmwares and versions of itunes and all have failed. Furthest I have had it go is to finish installing the firmware and try to verify, then I get an error (16).

Pwn'd firmwares nor original firmwares do not work. Ipod just boots up and gives the penguin.

Im running mac osx 10.5.8 and ive got the 32gb ipod touch 1G.