I am having a very similar problem with my sister's nano. (3rd gen I believe)
It will be playing normally & then just suddenly stop. When she tries to get it to start playing again she finds that it has gone out to the Main menu & will not respond to anything. This last time, after doing a restore, it is acting as though it is still full & will not let me put her music back on it.
If someone could point me to a solution to this issue i would be deeply grateful. Thank you for your time.