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I found out how to get Handbrake to work with the 5G iPod. Follow the previously posted instructions, but don't change the codec. Leave it on MPEG-4 Video / AAC Audio. I did this and it worked.
Well, yes. That will work. But the main reason I was attracted to Handbrake in the first place was because I wanted to use h.264 encoding (better quality files at smaller sizes).