I reverted to iTunes 6.0.4. In the process, I lost my Library XML file, since the "upgrade" to 7 supposedly saved a copy but iTunes 6 would not recognize it when I tried to open it today.
So, I had iTunes 6.0.4 rebuild/reimport all my files.
I can now sort podcasts however I want. I can order them by hand, or just click on any column in the iPod Shuffle source list. I can make a smart or regular playlist, copy to play order and autofill from that list.
As I recall, this functionality was getting flaky before I moved up to iTunes 7, so I'm going to bet it had something to do with a bad Library XML file. Why it went bad, I don't know.
Will it work with 6.0.5? I'm not willing to experiment. Will it work with 7? I'm not even going there until the "Keep this iPod in Source List" returns as an option.
If you try wiping out your Library file and reimporting your music, I think you'll be OK in 6.0.4, and probably in 6.0.5. If you still have episodes of podcasts on your drive, resubscribing is easy, but all your playlists, ratings, dates added, etc. are lost when the Library file goes. 😟
Save ratings in comments before you nuke the file. You could also save the playlist name in comments, and jot down smart playlist rules. See if Doug Adams has scripts to automate that for you:
http://www.dougscripts.com/itunes/
Comments, lyrics and artwork all survive the process.
Rob