I found this link of a Nano that has been taken apart. http://www.kodawarisan.com/kodawarisan/archives/2005/09/ipod_nano_aaa_1.html
It shows that it has a Microdrive in it. I just don't think these are as bullet proof as a actual Flash chip
It shows that it has a Microdrive in it. I just don't think these are as bullet proof as a actual Flash chip