Format an iPod

Plan to sell your iPod, or just want to completely Be Cleaner? This article will tell you how to restore your iPod to its original factory setting.

Steps

Be sure you have the newest version of iTunes available. At the time of this writing, this would be version 10 (10.2.1 for Mac version). This is available from Apple's website, or through the link at bottom.
Attach your iPod to your computer by whatever means it uses (dock, USB, Firewire, etc)
Open iTunes.
Click the button in the sidebar that says "YOUR_IPOD'S_NAME"
Click the tab at top that says "Summary."
Click the button that says "Restore."
Choose "Use Newest Version" when you are prompted for restore options - this will restore your iPod to the newest iPod software available.
Wait for the computer to restore the iPod.

Be sure your computer will be on for enough time to format your iPod - especially if you have a large capacity iPod or just a lot of songs.

This will erase everything from your iPod. Think before you act.
With older iPods you'll need a wall power connector, otherwise it cannot complete the process.
Obviously, don't remove the cable when it says "Do Not Disconnect" on the iPod; This could damage the software/firmware being updated in the iPod.