Well, I think it is fixed or I have gone the longest amount of time with the screen not going dim, no thanks to Apple.
I went as far as trying to jailbreak my ipod and "downgrading" to iOS3. I got it jailbrokenm but could not downgrade to anything, so I went back to iOS4.2.1. It actually worked worse while jailbroken, the screen never lit up. The "fix" came about when I created a whole new library for the ipod, loaded a fresh download of iOS4.2.1 and took all of the extra apps off and so far the screen has been staying lit all the time. the only thing i can think off was that there was something wrong with library file. Now if Apple could come up with an easy was for me to have my ipod open the new library when connected istead of me having to do the Shift+click method, becasue I am not sure if it is safe to delete the original library file.
Anyone having the same problem try creating a new iTunes library and copying your music files over, hopefully it helps you too.