Yeah right..this file extension is being used to prevent certain files, folders or pages from getting indexed. Sometimes this command becomes misplaced in a directory, a folder or on a page---and that's what happened to me. It kept me from seeing on my iPod 160GB Classic.

First it froze during a routine sync, so I had to reset it. Tried to sync again but couldn't get it to go beyond 3 podcasts in any of my USB ports. Rolled back the software to 1.0.3 and tried to sync in disc mode but it got to 12000 songs (out of 18000ish- took over 24 hours) and crashed leaving me with 90-odd GB filled up but no files visible on the iPod.

Just going into the iPod in Windows Explorer to delete the junk files to start again, and I see the file "metadata_never_index" at root level - googling this reveal that it's a Mac specific file. First I tried resetting and restoring to 1.1.1 and 1.0.3 but it didn't work. I felt like I'm about to panic until I've read this guide on http://www.pcperformancetools.com/file_extension_metadata_never_index.html
I was able to solve the problem by doing some fix in the registry. I've read that it's associated with mac OS, but I didn't realize it can also affect iPods. Oh well, I guess because iPods are a product of apple and so is mac.