I recently found myself in a similar situation. After updating music on my nano and disconnecting it from my computer, it began to reboot ... continuously. I tried to find any solution I could on several forums but was unable to find a solution that worked. I started trying different key combinations and timing keypresses on the nano itself, but to no avail. As I tried repeatedly to get it to stop rebooting, I began to flip it back and forth in my hand glancing at the display in disgust as it continued to reboot. Meanwhile I was looking at Apple's troubleshooting for iPods site. After about 10 seconds I glanced down and noticed I had flipped the nano upside down and while still hoping that pressing the "menu" and center "select button" would cause a reset that would recover the nano from its reboot loop, I noticed the screen had stopped rebooting and was displaying the "ok to disconnect" checkmark ... I let go of the two buttons and waited a few seconds to see if it had actually stopped rebooting. It had and I realized I was actually holding the "PLAY/PAUSE" button and the center "SELECT" buttons. I couldn't get the unit to do anything else at this point ... end of one problem beginning of another. I hooked it back up to my computer and it began to sync with iTunes again ... HURRAY ... I disconnected it once again, and it began the reboot loop again. I repeated pressing "play/pause" and the center "select" buttons and it stopped rebooting and displayed the "ok to disconnect" checkmark again. It actually only took a few seconds to halt the rebooting. I connected it to my computer again and this time I did a restore, completly restoring the system to out of the box condition. This seems to have taken care of the problem once and for all. It has not rebooted since.
I hope this will solve your problem as it did mine. I have read many other people with the same or very similar issues on many sites. Hopefully this will get around and help as many people as possible.
CAUTION: This will erase all music, contacts, pictures, and all other data.
1. Press and hold the "PLAY/PAUSE" and center "SELECT" buttons for about 3-5 seconds or until you get the "ok to disconnect checkmark". Then release them.
2. Reconnect to your computer and and allow the nano to show itself in iTunes.
3. Select the iPod and use the "Restore" option to restore your iPod to factory defaults. From here you will need to set up your iPod as you initially did when you first hooked it up.
Mac OS X (10.4.8)
Mac OS X (10.4.8)
Mac OS X (10.4.8)