a friend of mine had a problem with his ipod recently, the song/playlist/album/artist etc selection appeared on the main menu, he'd scroll to whichever song he wanted to listen to, press play and nothing happened. he has it a little over a year. gave it to a buddy of mine who works for apple, turns out the hard disk had died on him, replacement costs 100euro, maybe more. i fear the same thing has happened to yours.
they say an ipod has a life span of roughly 500 charges so maybe it's come to the end of the road. if i were you i'd go for a new one. you still have your music library on your pc so you haven't lost any of your library.
sorry to be the bearer of bad news.