I had a problem with my iPod nano where it stopped being recognized in Windows when I connected it to any PC with iTunes installed. Windows would reconize it as a drive letter, but if you clicked the drive icon, Windows would hang before timing out with an error (‘Please insert disk for drive e:’). The instructions on the Apple site also did not help. The iPod Updater software also would not recognize the iPod – it also would hang.
From Googling various sites, it appears that the flash memory in the nano can become corrupted under certain circumstances. To restore the memory to it’s orginal state, it needs to be reformatted. This forum post has a link to the HP USB Disk Storage Format Tool – download this and start it up when the iPod is connected. It will recognize the connected iPod – select ‘Quick Format’ and then format the iPod. Now start up the iPod Updater and it should recognize the iPod again. Perform a ‘Restore’ to put back the original or last firmware and you should now be all set. Start up iTunes and your iPod should now be recognized again.