Ipod Firmware

Solution
The message does not indicate that there is an issue with the iPod but that iTunes was unable to read the firmware file it uses to restore or update your iPod. You can delete the folder containing the firmware files so iTunes can download a useable (non-corrupted) version.

Here are the steps to take if you get this message:

Eject iPod and quit iTunes.
Use Disk Utility in Mac OS X or run chkdsk in Windows to verify there are no other issues on your hard drive.
Locate the iPod Software Updates folder:
In Mac OS X, the folder is
~/Library/iTunes/iPod Software Updates (~ represents your home directory)
In Windows, the folder is
C:\Documents and Settings\yourusername\Application Data\Apple Computer\iTunes\iPod Software Updates
Note: If you don't see the files in Windows, turn on the Show hidden files option.
Open My Computer.
From the Tools menu, choose Folder Options.
Click the View tab.
In the Advanced Settings pane, select the "Show hidden files and folders" button.
Click OK.

Drag the iPod Software Updates folder to the Trash or Recycle Bin.
Connect iPod and open iTunes. You will need to be connected to the Internet to download the files.
Additional information
The actual error message may look like this:

The iPod "John's iPod" could not be updated because the firmware file was corrupt.