TS1463: iPod Displays a Red "X" IconLearn about iPod Displays a Red "X" Icon
From that same article:
Setup Service for iPod
If you cannot force your iPod into disk mode and restore it, then your iPod may need service. Click one of the links below to setup an iPod Service Request online or make a reservation at the Genius Bar before visiting your local Apple Retail Store.
It seems as though your iPod's Hard Drive is dying and in need of replacement.