*If I update the software, would i lose the Music on iPod??*
there's no reason that updating the firmware should have any affect on your music, I can only speak from my own experience and I've never had an issue updating. However, it's foolish to rely on an iPod to store your music, you may at some point have to restore it to solve a problem and restoring will erase the iPod. You should always have a backup of your music some where. You might want to check out these pages for future reference:
How to back up your media in iTunes
Back up your iTunes library by copying to an external hard drive
*is there a way i can transfer music back to iTunes and back again??*
If you have any iTunes Music Store purchases the transfer of purchased content from the iPod to authorised computers was introduced with iTunes 7. You'll find details in this article:
Copying iTunes Store purchases from your iPod or iPhone to a computer
The transfer of content from sources such as songs imported from CD is designed by default to be one way from iTunes to iPod. However there are a number of third party utilities that you can use to retrieve the music files and playlists from your iPod. You'll find that they have varying degrees of functionality and some will transfer movies, videos, photos, podcasts and games as well. Have a look at the web pages and documentation, this is just a small selection of what's available, they are generally quite straightforward. You can read reviews and comparisons of some of them here:
Wired News - Rescue Your Stranded Tunes
Comparison of iPod managers
There's also a manual method of copying songs from your iPod to a Mac or PC. The procedure is a bit involved and won't recover playlists but if you're interested it's available on page 2 at this link:
Copying Content from your iPod to your Computer - The Definitive Guide
