iPod sad face icon
Your iPod suddenly displays a sad face icon when you power it on. Well, it doesn’t mean that it’s angry with you but it’s actually displaying an error code that it’s not in good health.
I 
saw something similar on my iPod and I freaked out! My iPod showed a folder icon with an exclamation mark. Alas, all my mp3′s were gone at that point. The only option was to restore the iPod to the factory defaults. But that didn’t work either.
Here are a few things you need to consider before you send it out to Apple for a replacement hard disk
First things first, BACKUP YOUR IPOD before you update the firmware! I found this the hard way. It all started when I tried transferring my latest tunes to the iPod and saw a creepy error message
“Attempting to copy to the disk failed. An unknown error occurred (-36).”
Thinking that my iPod hard drive had crashed, I tried to flash the firmware to the latest available from Apple. That was a huge mistake since the firmware update failed rendering it useless. After some digging around I found that the error was USB related and you can workaround the issue by plugging your iPod onto another USB port or a different machine.
Also, you might want to try the in-built iPod diagnostic mode to run some checks on your HDD before you attempt to replace the hard drive. More information about this can be found here
I found a handy tutorial for replacing the HDD on your iPod here. The article has some very interesting comments from many iPod users.
Good luck!