Well, it's probably going to have to be restored. When it come's to security on Apple products, they mean it. I wouldn't even backup the iPod touch because it might lock it up again after the restore. You can try a backup and it might work, but I really don't know.
Now, if it is jailbroken, that's a whole different story. I think there is some password recovery tools that you can get to to recover your iTouch and not restore. But the tweaks must already been installed before lockout. And attempting to modify iOS could seriously screw up the device. Besides, iOS encrypts the passwords with Industrial Standard Encryptions. So don't even try to decrypt it. Like I said, attempt a restore. It should work. If you need help entering DFU Mode, here are the steps -
1) Press and hold Home and Lock button for 10 seconds.
2) Release Lock button while holding Home button for 13 seconds.
3) After that, the screen should be blank and iTunes should tell you that you must restore the iPod touch!
NOTE - Your iPod must be plugged in to a Computer to enter DFU Mode!