Try turning off Advanced Data Protection for iCloud on a new device: https://support.apple.com/en-us/108756
Instead of reducing your iCloud security across all your devices and services which is a bad idea, I might recommend opening a second free iCloud account just for use with the iPod.
I'm able to sign in and use mine???
Yeah, but what iOS version?
What happens when you try to sign in?
Message: your Apple ID can only be used on devices running iOS 16.2 or later. This iPod can’t be updated to the latest software.
What happens when you connect it to a PC/Mac and open the corresponding Apple Devices management app?
EDIT: That means you have turned on Advanced Data Protection on another device with the same Apple ID
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