Weird video distortion (noise) on 5G ipod

Hello. I'm new here, but I would appreciate any help you can give me. I got my 5g ipod about three months ago ($90 with my Macbook Pro!) and it's been great so far. After recently updating to iTunes 7 (and updating my firmware, I believe, so that I could play games on it) I noticed some problems. First it was I was hearing some odd clipping (distortion) on my music. Not knowing what to attribute this to, I tried resetting my ipod (holding down menu and select for ten seconds). When that didn't seem to work, I restored it in iTunes. Of course, that didn't work either. And THEN, only THEN did I try a different pair of headphones. And well, those worked.

But then I noticed something else. Something altogether more horrid than I could have ever imagined...

At first it started out small. Twenty vertical lines crossing the screen. Loud pixels of red and green. They would be there one second, and gone the next. I didn't think much of this, as it didn't seem to interfere with my listening to music. And then I tried to watch a movie trailer on my ipod! Oh it was terrible! They appeared again in full force! And simultaneously with that some heavy audio distortion. Piercing electronic noise whirring through my head!

I'm running diagnostic tests on it now, trying to figure out what's wrong - but so far I haven't had any luck. Is there some new problem with the video codec? Does anyone have any idea what might be wrong? Please help me, because I'm not to keen on travelling down to the Apple store tomorrow.

Oh well, maybe if it's truly damaged they'll give me a new one. It is still under warranty, thank Jesus.

*Update* I ran the SDRAM test. Here's what it turned out.
RUN: BL on
PASS: BL blink
FAIL: BL off

...and then I reset it again, and the Backlight didn't come on immediatly. It took a little while, but it came on. Does this mean that I failed?

I have no idea what this means. Can someone enlighten me?

*Update, again* I'm running color tests right now, so here's a picture that'll show you roughly what I'm talking about. It shows up more prominently in the gradient tests (but also in the black tests). All of the rogue pixels seem to be red. Now just imagine it moving around, accompanied by a lot of noise.

http://i19.photobucket.com/albums/b196/baccus83/Photo20.jpg
 
Joined
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Your Mac's Specs
Aluminium Macbook 2.4 Ghz 4GB RAM, SSD 24" Samsung Display, iPhone 4, iPad 2
Have you tried restoring the iPod?

Plug it into your mac and click 'restore' in iTunes 7's iPod seciton.
 

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