Marketplace and Classifieds. You can even put a link in you sig to the Marketplace post. Though you might want to use something like Paypal and tracking when you ship it so you don't get ripped off, and neither would the buyer if something happened. Though, be careful with Paypal as well, and always ship ONLY to verified addresses.
I'd say it's worth around $300 easy. Even if there was a battery problem (which was supposedly with some older models, whose batteries died at about 18 months), you can get it fixed any time within the first year of purchase under the warranty, which is fully transferrable to the new owner (whatever is left of the original warranty). If the battery dies, Apple has the $99 battery replacement offer mentioned above. Others will do it even cheaper. You can even buy a new battery from OWC that has a little more life than the original battery, but you have to do it yourself, or pay a technician.
There was no battery recall for iPods. The guy is either trying to scam you, or ill-informed. Screw 'im.