This is confusing because of how people are writing about it.
We'll do it like this... here are the two features (one of which only the 5.5 has, the other both have once updated to 1.2.1 firmware).:
1. Search by text input (in the Music menu): this is a sub-menu called "Search" at the bottom where you can input alphanumeric characters and results are shown according to Artist, Album, and Song title (Artist and Album each having little icons next to them). Sort of like an on-the-go Smart Playlist, but the contents are not saved between searches. You navigate a horizontal 2-line keyboard with the scroll wheel to type in letters. Ex: "mad" would get all Madonna (artist) songs, all songs on Madman Across the Water (album), and also Lady Madonna (song) by the Beatles.
2. Scrolling search labels (in any playlist or listing): this is a feature that pops up the letter (or 123 for numbers at the very beginning) which you're browsing, which is helpful in getting to the bottom of a 75GB, diverse library if you want to listen to Yo-Yo Ma but you had just selected Alanis Morissette. It gives a translucent black label somewhat like in OS X.
According to most other websites (I've researched this at some length), while adding the scrolling search labels and such were no problem with a firmware update to the 5th gen iPods, the search by text input feature was a no-go. If you notice on your 5th gen, there is sometimes a great delay in opening lists depending on the complexity and/or number of smart playlists which update dynamically. Apple changed the PortalPlayer chip in the 5.5g iPod which made it more powerful and able to do on-the-fly searches and advanced operations, along with the screen. (Though most interestingly, they ran out of old 5g screens before other 5g parts, so some 5g iPods have the standard old PortalPlayer chip but the newer screen.) All 5.5g iPods seem to have the new PortalPlayer chip which activates the "Search" function in the Music menu, though, and there doesn't seem to be any hack or mod or way to activate it in the 5th gen iPods. Some say it's because Apple wants us to buy new iPods, but given how generous they've been with new features in the past, and even in the 1.2(.1) firmware update, I don't buy that. And I was upset at first, but I don't think I would honestly use the feature enough to be broken-hearted. I'll welcome a much better search feature on my next iPod... multi-touch and solid-state iPod, that is. For now, I heart my 5G and it does me well.
