Q: If I restore my iPod does it delete everything from my iTunes library too?
A: No. Although a “Restore” will erase everything on your iPod, effectively reformatting the iPod’s hard drive or flash memory, your original iTunes library will of course remain intact. In fact, short of specifically deleting content from within your iTunes library manually, there are no options in iTunes itself that will erase any of your library content without your knowledge or permission.
This is one of the more compelling reasons to maintain your iTunes library on your local computer, and use automatic synchronization of your content. Should a problem occur with your iPod, restoring it and reloading it is an almost trivial matter, requiring nothing more than waiting time for your iPod to reload.
After an iPod Restore operation, iTunes will see your iPod as if it were a brand-new iPod that you had just purchased. The normal iPod setup wizard will run, similar to what you would have gone through the first time you connected your new iPod. The setup wizard itself will offer to automatically synchronize content for you, or allow you to leave the iPod in manual mode.
Once the wizard completes, you can then customize your synchronization options to their original settings, and iTunes will go ahead and reload all of your content onto your iPod. This may take anywhere from a few minutes to several hours, depending upon the size of your iPod, your iTunes library, and the connection between your iPod and your computer.