iTunes 7 works flawlessly for me. If you are having problem with iTunes the best way is to trash your library (not the music), and have iTunes rebuild your library from scratch.
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did you ever call apple? If so please tell me how, its very hard to find help on the website and calling them about an issue you need like a "help code" or something you get if you purchase some special warrenty...
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If your iPod has died, there is a 95% chance that the Hard Drive has failed. Unfortunately that is the problem with Hard Drives in general. They can't withstand a lot of shock & vibration, especially during a read/write cycle. However it is replaceable, if you choose to do so.