A new battery has rejuvenated my two year-old iPod. I hadn’t realized to what extent the short battery life had changed my usage patterns. I had stopped using it without an external power source. When the battery stopped charging consistently, I finally pulled the trigger and ordered a $20 replacement battery from Sonnet Technologies. After a poor FedEx Ground experience (they require a signature during daytime hours), I re-ordered through MacMall.
This is a great alternative to a $70 Apple Store replacement offer that I heard about from a colleague. However, taking the case apart is tricky. It took me about 20 minutes of fiddling, stabbing myself once with the special tool in the Sonnet kit, and a key try from my wife to get the iPod apart. Once past that point, the rest was a simple matter of disconnecting and reconnecting the power and data cables.
This technique is definitely for the patient, but if successful results in that “brand new” feeling.
See iPod Battery FAQ for a list of third-party battery manufacturers, links to iPod disassembly instructions, and a solid primer on iPod battery characteristics. Good luck!