It's just a matter of getting out of that mode. Diagnostic mode is what the Apple techs use to scan the iPod for problems when it's taken in to be serviced.

Exiting Diagnostic Mode

The Apple discussion boards are a really good place to look before venturing out to the Apple Store. That way, you'll know if it's a common problem that is easily fixed yourself.
A wise and frugal government, which shall leave men free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned - this is the sum of good government. ~Thomas Jefferson