hi andy,
first of all - try to identify the iPod the devices with 4gb are the [[Device:iPod Mini|iPod Mini]] and most of the [[Family:iPod_Nano|iPod Nano]]series.
open the iPod again and check the logicboard for "white/greenish" stuff, looks sometimes similar to a powedery substance. clean that with isopropyl alcohol (>90%) and a soft paintbrush. since you wrote that the screen is very dull - i would check the connectors too - clean the dock connector in- and outside(!!).
be careful, the parts inside the iPods are small. let everything dry and then reassemble the iPod. then you can try to recover it again (if the iPod still wants to do that)
it can always happen that the update server is badly reachable (had this more than once)