These types of batteries are intentionally designed to "die" after a set number of charging cycles, I think for safety reasons. One charging cycle is empty to charged, so if you charged after half empty, that counts as half. Depending on how much the nano is used, the useful lifetime ("on the calendar") of the battery will vary from person to person. There is no set time limit on how long it will last, because people use their iPods differently.
The 5th gen nano was sold (as new) until mid-2010, so it is two to three years old. The battery can be worn out in that time, with heavy use. If you used it for only about one hour per day, 5 days a week, it should last longer compared to 6 hours a day, every day.