I may have figured out why this occurs and a way around it.
I just bought an iphone 5 and an ipod nano 7th gen. Neither would sync. Suddenly realised, id not synced any device to itunes since upgrading to version 11. Got my ipad 3 and ipad 1 out, neither would sync.
The problem is using the convert to a lower bit rate, so, ask yourself this :
"If you were to sync everything you are trying to sync without using the lower bit rate option, would it exceed the limit of the ipod?"
If the answer is yes, then it confirms my theory that itunes is struggling to perform the space calculations required. Its almost as if its thinking "im going to copy everything to the ipod first, then im going to compress it". But it cant do that, you dont have enough space, so it just fails over.
To prove my theory, i chose to sync by artist and synced them batches at a time (using the lower bit rate option i need). Each time the sync ended, the songs were there correctly, nothing went wrong and the space used on the ipod updates. Then i did another batch of artists, and another and another. You will find you can sync your whole library this way because you are freeing up the required compression space in batches, rather than asking for more than you have all in one go.
Everything i have tested with my devices seems to support this, if its true and this is the logic itunes is using then i guess Apple will fix it. Of course, i could be completely wrong, but i have now confirmed this on a PC running Windows 8 64bit, a 2011 Macbook Air, an ipad1, ipad2, ipod nano 7g, iphone 5. Am yet to try my work iphone 4. If i am wrong, its odd that my solution seems to work for every device i have, even on different computers.
Hope this helps somebody