Grey text when you look at the content just indicates that the iPod is set to sync automatically with iTunes. If you want to play the iPod songs through iTunes, delete songs from the iPod, drag songs from iTunes, add playlists to the iPod etc. you need to change the update setting to "manually manage songs and videos". The text will change from grey to black and everything will be directly accessible through iTunes:
Managing content manually on iPod and iPhone Syncing Music to iPod
Something to remember about using an iPod in manual mode is that the "Do Not Disconnect" message will remain on the display until you physically eject the device:
Safely Disconnect IPod
I had a very similar problem. I came across this post early on and it did not have an answer or help me with my situation - so, when I got my situation fixed, I thought I would come back and give my solution to see if it would help.
Reset ipod (toggle hold then hold down menu and select buttons until apple appears on screen)
Remove iTunes 9 (drag to trash)
download iTunes 8 (easy to find with a google search)
Install itunes 8, after installation when you open iTunes it will tell you the library was created with a new version... so what! restart iTunes while holding down the option key. tell it to create a NEW library- name it what ever your not going to use it.
plug in the iPod... i got an error saying the firmware on ipod was not the same as itunes and to install additional ipod support from OSx disk... DO IT! (additional software - ipod support)
restart mac
open itunes plug in ipod and it should recognize it.... now it should tell you that your ipod has a firm ware update... do it! Once that is finished and has rebooted your ipod and you can see it again in the itunes menu- update itunes back to version 9.
Done! Simply point your itunes music folder back to where all your tunes are located and import the entire thing (my itunes folder is about 40gb and this took only 5 minutes)
resync music to your ipod and you are done. and you are on the newest version of itunes with your classic ipod!
