The "pop up" is not related to his iPod but rather the software program iTunes. The file size is NOT large (a couple of albums worth of music are more than this) and is about average for an iTunes update. Keep in mind that it won't be taking up much in the way of additional space on the computer
since it will be replacing the current iTunes install and once the temp files are cleared that will be the end of the downloaded installer. That said, you don't have to upgrade unless you get a newer device that's not supported by your iTunes version, but, on the other hand, you miss out on any bug fixes and improvements to iTunes by not upgrading (of course, you also get to miss out on any new bugs
The Safari prompt is an annoying "quirk" of Apple's. They offer to upgrade it even when you don't have it (this would actually install it). Just check it and select "Hide updates for this application" to get rid of the prompt. Safari is not needed for anything related to iTunes or iPods, Apple's just deceptively and shamelessly pimping to increase their installed market share base.
If you're not seeing the iPod mounted as a device, check the "enable disk mode" on the general tab for the iPod when its docked in iTunes, it will then show up as a drive in "My Computer" until ejected from within iTunes. The movies are in a DCIM folder like any other digital camera device.