You could try that, although it wouldn't do you much good if you don't still have AppleCare on it. If you can't return it to Apple, I would say your best bet is just to buy a new iPod, usually liquid damage causes troubles with the logic board, which is a costly repair. So, between the chance of there being other problems with your iPod and the time and money it would take to repair it, it may be better to buy a new one. But, If your iPod is still protected by AppleCare, it is worth a shot.
Is this only occuring with one disk or have you tried many different disks? A simple reason that first comes to mind is that your disk is scratched. The more complicated one would be that your optical drive is broken. This is actually a very common problem. There are a lot of guides on iFixit that will show you how to replace it. Good luck!!!
Nevermind guys, I figured out I had to change the system preferences. I went to Startup Disk and they were set to boot on Network Startup instead of my new hard drive. Thanks for looking!!!
When you spilt water on your iPod Touch, you most likely damaged the logic board as well as the LCD, so no matter how many times you replace the LCD, the touch response still won't work because the logic board won't recieve the information. Even if it shows the image, the logic board could still be fried. Sorry.