I had all the above symptoms.
My Mother in laws' Ipod 30Gb 5th Generation had been run down to no battery.
Plugged into computer to recharge the batteries, and iTunes said to update the software that hadn't been done for a year or more...
This made the iPod die, and the sad face came up.
Went to Apple store, and they said buy a new one for £110, or buy a replacement drive off of them for £109. They just wanted her money!!!!
Tried all other fixes, like the business card trick, and the take the battery lead off for 5 minutes thing, and still no joy..
Then, having read the 100 or more posts above, and taking tips from all of them, I plugged the iPod into the Pc, It said very low battery..
Forced Ipod into didc mode and the battery looked fully charged (not strobing, just fully lit up) with the little mains symbol next to it.. This was conflicting advice, as it was saying charged one minute, then very low the next...
did the menu and select reset 6 times while the apple logo was still showing... never let it go any further... then UNPLUGGED the connector and sent it into disc mode.. Quickly plugged connector back in, and now the battery IS charging and the sad face has gone..
There seems to be TWO disc modes to me.. the one you get to if you are connected to a pc or charger, and the one you get if you are NOT connected to them.
The 'not connected' one is the fix for my iPod..
Hope this works for you..