My iPod suddenly began hanging when playing a song, and would then freeze. After resetting it, the Apple logo came up, and there was a distinct clicking sound as the hard drive spun up, died, spun up, clicked, and died again. This repeated several times while the Apple logo was showing, and then progressed to a sad iPod picture (and at other times, a folder question mark picture).
Plugging it into the computer didn't do much -- it usually did the same thing with the Apple logo and wouldn't start up. Rarely, it would get past that point and iTunes would inform me that the iPod is corrupt and needed restoring. I searched a bit online, and found that this is caused by a faulty hard drive (specifically, loose parts in the hard drive). But to my joy, there is a relatively easy fix.
Open up the iPod, and place a folded-in-half business card (or equivalent substitute) between the outer metal casing and the hard drive itself. This puts a small amount of pressure on the hard drive, and has permanently fixed every iPod I've tried it on. Both my iPod, and two of my friends' iPods, have had this issue -- I think it is more common then people realize. An easy $300 save.
[robg adds: I haven't tested this on my iPod, and would probably only recommend it as a last-chance fix. But if it's the difference between recycling and continuing to use, it might be worth a shot. If you've got any experience with this solution, please post in the comments.]
Mac OS X Hints
http://hints.macworld.com/article.php?story=2007011900305186