I had a similar problem, but did not receive an error message. iTunes was detecting my iPod Nano with no problem, but when I plugged in the iTouch to that same USB port, my PC was not recognizing it. The PC would make the sound (like a bell?) when I plugged it in, but nothing would come up.
I tried the Reset, Restart, download latest itunes, nothing worked.
Finally, I found a comment someone made about uninstalling the USB port under Device Manager (Control Panel->System-> Hardware). The thing was that I had to actually have the Device Manager open, with all the USB ports listed (click on +), because the Apple device (!) only showed up for a few seconds, and I had to click on it real quick and select Uninstall. Then I unplugged the iTouch and restarted the computer. After that it worked just fine. Whew.