iPod touch 4th gen restore broken
When you perform the reset, do not "restore from backup", as iTunes will prompt you to do when it detects the "empty" device.  Instead, press cancel, and your iPod Touch should be empty.

For the most security, you should perform the erase from the device itself - In Settings, go to General, and select Reset; then, select "Erase All Content and Settings".  It may take a while, but it is a secure way to erase the device.