The older iPods required that they be disconnected from the USB port and plugged into an external power adapter i.e. wall charger. Once plugged into that it would perform the final step of the either restore or update. Just had to do the same last night with my old iPod. I've used either, a USB wall charger and an external firewire wall charger and it worked well with both. After this step the iPod was again recognized by iTunes. So I do not think that it is a cable or Firewire issue. The iPod 3rd generation is the one that truly needs firwire to be charged.