Have a look on iLounge - there are some very useful stickies on scratch removal. I've used (and still use) a product called displex, but for a significant scratch you may want to go down the liquid Brasso route. If you haven't heard that this is now the product of choice for scratch removal I don't blame you for being sceptical/scared at the prospect of using it, but it does seem to get results!
It requires some effort - not just a couple of minutes of rubbing after application, but around 20min. And it really can return the iPod to as new condition.