2nd gen iPod Touch with a faulty screen, home button, or both?
It sounds like you have a bad front panel.

The front panel of the iPod touch (screen cover, touch sensor and home button) is a single piece with a ribbon cable connecting it to the rest of the iPod.

If you are at all handy changing the screen cover &amp; home button is not that difficult. You can get the parts and tools you need from iFixIt for about $75 with Shipping.

There is a video demonstrating the removal of the front panel.

When I cracked the screen on my 3rd gen iPod touch, Apple was going to charge me half of the iPod's new price to replace it. Since I didn't really care if I completely trashed it I decided to go this route. The surgery was successful and the iPod works perfectly.