I 'hot unplugged' my iPod Touch, and plugged it back in, with Finder, and Photos running. I got the 'you have to enter your code on your iPod Touch' message in Photos, and after that, a few seconds, and it transferred the images. It appears that there is a bug in the authentication process, and hot unplugging the Touch 'woke it up', and things worked. Of course, YMMV, and in the case of badness, the secretary will disavow any knowledge of this incident.