to update the OS plugin you iPod and connect to WiFi. Click Settings > General > Software Update > Download and Install.
If your password doesn't work, I would try resetting it. You can reset it using the link below. https://iforgot.apple.com/password/verify/appleid#!§ion=password Make sure the iPod isn't linked to a different Apple ID, if it is you'll need to remove the link to the device.