Some radios do not support all audio protocols and bit rates and depths. Stick to MP3 audio format and this usually helps. Also make sure the radio device has the usb port selected as the audio source, sometimes this is required.
However you state the iPod is not recognized, this could be a usb cable problem. Try the usb cable that came with the Nano, if that is the one your using, does it sync ok with iTunes using that cable ? Id so, maybe the problem is either the usb port on the radio. To confirm the radio usb port is working, try using a flash drive and couple a couple MP3 songs from iTunes to the flash drive/usb stick and see if that works. If it does, then take your Nano and cable to Apple retail store and ask them to check your Nano and cable out for you. All at no charge, just make an appt or if you feel lucky, just walk in and wait 15 mins or so to see a Genius.
Hope this helps
USB selected as source on radio, flashdrive with mp3 works on radio, nano connects successfully to iTunes using supplied cabled which is also the cable I'm using to connect to the radio's usb port. So, I'm guessing that the music synced from iTunes to my nano is all in AAC format and that's why the radio comes up with an error message. So I'm also guessing that I'll have to re-record all my iTunes music library using mp3 as the import protocol. However, I'm still not entirely sure if the nano will simply see the radios USB port as a charging point, rather than a docking point. But I'll give it a go and see!