Oh just one other thought...
Your phone needs internet access to be able to verify your Google account. You are in range of a wireless access point that it can connect to and/or you have a SIM card in it that has a data plan?
To do a factory resest (I've never done this, but I understand this is how you do it), you make sure your phone is off, and then you HOLD the Home and the Power buttons at the same time all the way past the T-mobile G1 loading screen (about 15 seconds or so). You'll then see a screen with an arrow pointing to the G1. Press the Home and Power buttons again at the same time and it should start a factory reset.
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