I have a 2nd generation black 8GB iPod Nano, a few weeks ago the screen started blanking when it went into power save mode. It continues to play tunes but you don't get any visual display, the screen remains blank. Completely white.
I googled for solutions and found lots of other people have this problem, its so common its no longer classified as a bug, its become an iPod feature.
Disgruntled customers appear on Apple's forum to express their displeasure at the performance of this overpriced under performing hardware. This is not a new problem, I found instances of it as far back as 2006. We are into year four and Apple does not GAF. They are selling their overpriced hardware (iPod, iPhone, iMac) faster than hot cakes.
To date no one has a solution, not even the wizards at Apple.
A lot of people suggest the LCD screen is at fault, but I disagree. After a reset, you often get the Main Menu screen back. Its a software fault and I believe its related to the power saving mode. The problem only occurs after the iPod tries to save battery life and shift to power-save.
If you run the iPod and set it to keep the screen back light on, its blank screen syndrome does not occur.
One possibility is to install Linux on the iPod. This eliminates the bug, the host software and your music or photos along with it. Do a back up first!
Unfortunately there's no iPodLinux for the 2nd Gen Nano, as Apple has protected the 2G Nano with firmware encryption. So that's not a solution I can use!
At this point in time, I'm not sure which way to go.