Yeah, it's not actually to do with your iPod being faulty, it's more to do with the way iPod actually handles the codecs I believe. iTunes is a lot more open when it comes to file formats, as it was intended to be a multimedia application. iPod on the other hand is a portable device, and so they need to make sure the file formats are VERY STRICt (for performance reasons - decoding can use processor cycles and therefore battery). so iTunes converts them beforehand.
However, there are certain codecs (even within MP3 itself) that fail to translate, although I'm not sure why? or whos at fault? Apple or the codec? It does seem weird seeing as it would have to decode the file to even play it in the first place. Seems most likely that there are locking protections built into the codec or even metadata?
The good news is that your iPod isn't broken. The bad news is that the songs probably just won't play on it. Could it be you could try recording them manually with a program and then converting into mp3? Thats what I'd do.