I do agree that the Nano's current capacities could be increased - maybe up to 8 gig but the prices must be reduced. The shuffles should all be well under $100 au and also be marketed as an Apple flash drive - that's pretty much what I use my 1 gig shuffle for.
The one thing about the Nano is it's portability. You can put it in your top shirt pocket and not even realise it's there - perfect for the 45 min trip to work on the train. Battery life can be an issue unless you set your backlight timer to one of the lower levels. I have so far used my Nano more that my 3rd generation ipod even when it was first introduced. Regular iPod's are just too big for my tastes.
I think the Nano should be the player that you put all of your current favourite songs on. Change them weekly etc... Your iPod is the player you take with you on a 2 hr or more roadtrip or planeflight where portability is not that paramount.
aussie_geek