If I restore my IPod Touch, what will happen to my library?

You will lose everything on your iPod if you restore your iPod as new. It's like buying a new iPod Touch, so all your information is removed from the ipod (such as music, apps, app settings, wifi password, contacts, etc). Essentially, everything will get deleted during the restore, and it will only reload what is on your
computer when you sync the first time.

That's why you should always have a working backup of your iPod, before doing a restore.

With that in mind, you should be able to restore your iPod, without doing a completely "new" restore. When doing a restore you can choose "Restore from the backup of:" your iPod backup copy. When you restore your ipod from the backup, you should retain all your previous settings, apps, etc., and will just need to reset your iPod Touch password (if you use one to lock your ipod).

Your music library is on your computer, so that will get resynced to your iPod after the restore, which may take a while depending on how much music you have.

Do u lose all ur iTunes money as well?