I feel your pain. I bought some broken iPods and am trying to figure this one out as well. What I have discovered is that when I move the flex ribbon of the click wheel a certain way while it is connected to the mother board, the click wheel works. It has something to do with the connection, although I can't say this is the same problem everyone is having. What I do know is that it's not a software issue. I have restored after restored after restored and even zero'd out the data with disk utility and then restored again with itunes. Unless I need to downgrade the firmware, which I really don't think will help. I can't tell if there was liquid damage, but nothing indicates this on my iPod. All I know is that I was able to use the iPod properly when the ribbon was forced a certain angle....and then it glitched out and kept restarting and now I can't get it to do anything. Figures.
There has got to be a trick to it, or something I am missing when putting it back together. I can't get the click wheel ribbon to go back in properly. It keeps getting bunched up and sticking out the end. It is long enough to stick out so you can detach it from the other ribbon, so is it supposed to fold up inside when you push it in?