I spoke with Apple today, and they explained how to fix it.
First, plug in the iPod. Highlight the ipod on left side of iTunes. Then go to 'Summary' and make sure the 'Manually Manage Music' is checked. If not, check it, then sync.
Then, drag and drop your playlist into the ipod. On the left side of the ipod name is an arrow. Click that, which will show 'Music' and your playlist. Right click the playlist, then hit 'Copy to Play Order'. This option will not be available if you haven't already checked the 'Manually Manage Music' in Settings.
THEN, hit sync, and disconnect/remove the ipod. When you turn on your ipod the music will still be out of order. You have to press and hold the voiceover button. The voice will list your options, starting with 'All Music', then the name of your playlist.
While you are hearing the name of your playlist, press play on the ipod, and it will play them in the correct order.
And there you have it.
Why so hard, Apple?