This may be a little late, but I couldn't find the answer to my issue anywhere, so I'm posting it here. I recently received a 5th generation iPod Touch with iOS 7 installed on it. When I opened the package and turned on the device, it prompted me to select a language and network. After doing so, the device displayed a message stating that it was in the process of being activated. I waited about 30 seconds and received a message stating that the activation server is temporarily unavailable
and to try back in a few minutes. I waited and tried again, only for the same result. Hooking it up to my computer and iTunes displayed a message stating that my OS was out of date and needed to be updated. After trying to update in iTunes, it confirmed that it actually was up-to-date. Restoring the device in iTunes also resulted in an error message.
Anyways, I'm not sure what the issue was, but this can be fixed by keeping iTunes open on your computer and your device plugged into your USB port. Hold down the top power button and the bottom home button simultaneously. Once the Apple icon appears on your device screen, release the top power button, but keep holding down the bottom home button. Release the bottom home button when you see a popup in iTunes that states: "iTunes has detected a device in recovery mode. You must restore this device...
", then follow the instructions.
The files get downloaded and the device gets setup properly. I hope this helps anyone having the same issue.