You can actually (so long as the computer you'll sync the iPod Nano with can access the drive containing the library) have iTunes use the library as it exists on the external hard drive.
That actually helps me understand something: the iTunes library was linked to the iCloud database. However, when I hold down option and restart iTunes as directed in that help file, I try to link the library that is on my external drive marked "iTunes." It tells me there is no iTunes library there...I suspect there is a file missing (database file or something?) that needs to be moved over?
You may need to run through the following steps:
Once you've done that, follow the next set of steps to change your iTunes Media folder location to the new drive and then consolidate your library to the new location. This not only copies your audio and media files over, it also retains your ratings and playlists. Note: If you move your music and media to an external hard drive, you will need to have that drive connected to access your files. No matter what, it's always a good idea to have a backup of the media you have in iTunes.
- Open iTunes.
- From the iTunes menu, choose Preferences.
- Click the Advanced button in the Preferences window.
- Click the Change button in the iTunes Media folder location pane.
- In the Change Media Folder Location window that appears, navigate to the location where you would like your new iTunes Media folder to be created.
- Note: By default, your iTunes Media folder is a folder named "iTunes Media" in ~/Music/iTunes/ where the tilde "~" represents your home directory.
- Click the New Folder button in the Change Media Folder Location window.
- In the New Folder window that appears, enter the name of the new iTunes Media folder.
- Click Create.
- Click Choose in the Change Media Folder Location window.
- Click OK in the Advanced window.
- From the File menu, choose Library and then Organize Library if using iTunes 9 or later. If you're using iTunes 7 or iTunes 8 for Mac, choose File > Library and then Consolidate Library.
- In the Organize Library (or Consolidate Library) window, select Consolidate files.
- Click OK. Important: This action copies all of your music and media files to the new location. There must be enough hard disk space available to copy all of your music and media files.
- After the folder has been copied, locate your original iTunes Media folder, and drag it to the Trash. Important: Don't remove the iTunes Library files that may be in the same location as the iTunes Media folder. For more information about the iTunes Library files, see this article.
- Quit iTunes and then open iTunes once more.
- If you receive the alert "The folder containing "iTunes Library" cannot be found, and is required. Please choose or create a new iTunes library," you most likely moved the iTunes Library files. If this is the case, move them out of the Trash and back to where they were.
- If you can open and close iTunes without encountering the above alert, empty the Trash.