I don’t use my iPod as much as I used to, owing to the fact that I work from home now so I don’t have my daily walk to / from work in which to listen to it. Updating it for the first time in ages I was presented with a lovely “iTunes has detected an iPod in need of recovery” error message, which I thought was odd. Nevertheless I dutifully followed the instructions and performing the recovery, which is a pretty laborious process involving some waiting, disconnecting, rebooting of the iPod and reconnecting, at which point I got the same error. Rinse, and repeat. Scratch head.
Long story short, the eventual cause was a drive mapping - I had forgotten that since I last updated my iPod, I’d mapped the I: drive to a local folder (using subst) to replicate a customer setup on my machine, completely forgetting that I: is the drive the iPod likes to use, and if it’s in use it gets rather confused it seems. The resolution was to either to stop using the I: mapping (which is what I did, since I didn’t need it anymore), or telling the iPod to use a different drive letter in Disk Manager.
This is reported in the Apple knowledge base, although it’s a couple of links down from a typical Google search so easy to miss. You would have thought a more specific error message would have been better, since something like this is pretty easy to do by accident and then forget about, like I did.