Apple's iCloud page lists:
With iTunes Match, even songs you’ve imported from CDs can be stored in iCloud. And you can play them on any iPhone, iPad, iPod touch, Mac, or PC
The Nano doesn't have any wireless connection capabilities and has to be synced via cable with an iTunes account.
I actually had to look it up because I've not been following the Nano specs and features for a while, so I won't judge you for asking.
I'm pretty sure the songs will need to be physically present on the computer you are syncing the Nano with, but I'm not 100% sure.
Edit: I just attempted to sync music that I have stored in the iCloud, but not written on my harddrive to an iPod Classic and it only syncs the music that is present on the computer. I tried to grab a few iCloud file and throw it on the iPod, but I had to download them before it would work.
So, yes. You do have to have the files already downloaded to sync to a non iOS 5 iDevice.