The company has released iPod Reset Utility 1.0.4 for you to be able to restore factory settings in case iTunes fails to do so. The software is designed for first- and second- generation iPod shuffles only. The utility process will format all data on your player, and will install the latest iPod software on it.
The iPod Reset Utility can be used to fix the following issues:
When your iPod is not playing music, and can't be restored to factory settings using iTunes.
When iTunes is not recognizing your iPod, but is visible in 'My Computer' or in 'Device Manager'.
When iPod shuffle (first generation) is identified as a device in 'Recovery mode' and iPod shuffle (second generation) is identified as a 'USB DFU device'.
To download the iPod Reset Utility 1.0.4, click on: http://www.apple.com/support/downloads/ipodresetutility104forwindows.html.