That points to an issue with your iPod's headphone jack, meaning you'll need to have the iPod serviced/replaced either by Apple or a third party service.
Here is Apple's repair pricing.
Note that they don't actually repair the device, but exchange it for one of the same generation, model, and capacity. A third party service will actually replace the damaged part for a little less. Google "iPod headphone jack repair" and you should get a number of results to work with.