I wanted to add my info to this thread, as I am having the same problem (with an added twist).
I got my new iPod home, registered, declined the free videos, and started the sync -- it took many hours to get everything loaded up, but finally finished.
I noticed the "version 1.0.3 update available" after I had already started the sync... so once the sync was finished, I clicked on the Update button -- and one of two things happens repeatedly, no matter how many times I have tried:
1) As soon as the unpacking progress window opens, the iPod suddenly ejects itself (e.g., the screen on the iPod says "Ejecting - you may now disconnect" -- this causes the update to fault out, giving the iTunes error "The update can not be completed, because the iPod "xx" cannot be found"... even though the iPod is still visible on the desktop, and in the iTunes sidebar (while the iPod itself, however, has switched over to it's charging screen, as if it's not connected but still plugged in.)
2) It goes through the "Unpacking Software" progress window, asks me to Authenticate, spins for about 3 minutes... then pops an error message "the iPod "xx" could not be updated", with an error # of either 1430 or 1462.
I went through the "5 R's" repeatedly, to no avail. I
really do not want to do a restore and start over -- it took nearly 10 hours to get all my music and videos on there -- from the sounds of the posts on here, it doesn't sound like that will work either.
Would love to hear if anyone has seen or heard anything about this, as it's definitely not just a couple isolated incidents. Pretty frustrating - I've never had an issue with the 4 other iPods I have owned up to this point.