An honorable member of the Coffee Shop Has Just Posted the Following:
if your ipod touch is having problems with audio function, here's a solution that works:
https://discussions.apple.com/thread/3038613
specifically:
I just want to let everyone know how i fixed my issue.
I have the 6th Gen (it works too on my 2nd Gen ipod touch! - SSLiS) iPod Nano so i can't guarantee this will work for you but it did work for me.
i held down the power/sleep/wake button and + volume button until the apple logo appeared (approx 10 seconds).
Click here to view the whole thread at www.sammyboy.com.