Problem Syncing iPod Nano device

I recently bought an iPod Nano 1st Generation (4GB) that I wanted to download some iTunes playlists too, but when I sync it it reads as if there is no room at all on there at all. It won't take 4GB worth and even if I try to add just a single small track it says:

"The iPod cannot be synced because there is not enough free space to hold all of the selected items (additional 53.5 MB required)."

If I take everything off and sync 0 tracks & playlists it will still show "Other" in orange bar as if something is using up all the space on it. But there is nothing on it. If I scroll through the iPod itself I can't find anything. What could be the issue? Is it defective?

(I have another iPod Nano (16GB) and when I sync that one there is no problem.)