Hi,
I too had the trouble with Ipod shuffle 2nd gen. as given item to populate with songs for a friend who does not have a computer.
got the usual 'will not connect, can't reset to factory settings etc.

My fix was as follows ( My Computer is a PC running XP Pro sp3)

* removed all itunes, ipod software.
* shut pc down.
* rebooted PC, downloaded the reset software from the apple website.
installed this.
* connected my shuffle.
* checked that it was being picked up by checking the safeley remove hardware icon. It appeared under
USB Mass Storage Device (Apple iPod USB Device) .
* next I loaded up disk management from with in computer management.
the Ipod appeared as iPod in the volume window at top. go to the window at the bottom and right click to
format the ipod (did mine in fat32). next right click on drive again and allocate a drive letter to it. one at the
top end of the alphabet is easier. Your shuffle should now be recognised by the computer in the my
computer folder.
* Next start up the IPOD RESET Software that was downloaded and installed earlier. This should now pick up
your IPOD - you can now factory rest it. this will format the IPOD and prepare it for use with Itunes. The little
light on the top should change from amber to green to indicate it is now ready for use.
* Download the latest Itunes software from the apple site. install. when installed it should start straight away if
you have the ipod still connected to the computer.
* Itunes will detect the ipod and you can now proceed to set up your ipod for use in itunes.

***** once the factory settings have been set with the reset software, the ipod will no longer be detected in
the my computer folder.

I hope this was of some help to you.

need any help drop a message here and I'll try to help.