It is likely that the iPod's hard drive is faulty, and there is a problem with the iPod's storage media at about the point where 500 to 600 songs would be loaded. That is why it errors out consistently at about the same point in the data transfer, no matter how you load the songs.
You said you tried converting your song files from MP3 to AAC, so that would rule out a problem with the files being transferred.
It may be a problem with the connection between iPod and computer, but then, I think the problem would occur at a random point, not consistently when you get to about 500 to 600 songs.
You can set the iPod to Disk Mode
http://support.apple.com/kb/ht1363
With iTunes NOT running, connect the iPod. If you have any Windows utilities that can examine a hard drive, you can try them on the iPod's hard drive.
You may want to try reformatting the iPod's hard drive using Windows (instead of doing a Restore in iTunes). The format type used on the iPod's hard drive is FAT32 (when the iPod is used with a Windows PC). If there is an option to do a "quick format," do NOT select that option. Do a "full" format (it may fail at that same point).
If that completes successfully, try running iTunes. It will probably prompt you to do a Restore, which you will need to do because the iPod does not have any of its software loaded. Then, see if your problem still recurs.
