MacFixit reader, Bruce Nofrey is reporting “‘Like other users, I have also had problems updating my iPod with the iSight camera connected. The iPod would continue to have the ‘do not disconnect’ sign displayed – then the iPod would freeze ( clock not being updated) and finally my G4 tower would freeze.
I have replaced one iPod and have talked to tech support when the second one did the same thing. We could not get the RESTORE function of the iPod Updater to recognize the iPod.
Unplugging the iSight firewire cable from the computer will allow the iPod to be updated correctly.” Apple suggests installing iSight Updater 1.0.2 as noted in this Knowledge Base document..