All songs on iPod are greyed out with dotted circle

what does the dotted circle mean?

Dotted circles next to songs, won't sync, red circle with square?

What does the gray dotted circle in iTunes mean?

I've been having this exact same problem. I tried everything from the different checking / unchecking of boxes.

Eventually I tried to back up my music, then delete all the music in iTunes and importing it all back in. But this was to no avail.

But then what did work was:

1) In the settings part of your device click Music

2) Un-click sync music

3) Click the "Selected playlists, artists, albums and genres option" rather than the entire music library.

4) All the greyed out songs that you are getting under music on your iPod, put these under a new playlist on your iTunes.

5) Now select the playlist with all the music that would not properly sync beforehand (Within the Music section under settings in your device).

6) Click the option "Automatically fill free space with songs"

7) Sync

Hopefully this works for you, I have the same version iPod and same iOS - Running on a 2010 Macbook Pro with OS X Yosemite.

Go into your iPhones settings, then music, and then turn off iCloud Music Library. Turning this off fixed the issue for me. Hope it helps you too!