When my green iPod mini was fairly new, I did an upgrade (from 1.0 to 1.1, I think), and something went wrong in that upgrade. The mini had some problems with large syncs, froze up on me a couple of times and the icon showed a blue(!) iPod mini, but apart from that it still worked. When the next update came along, it greyed out the "update" option, and forced me to "restore". This didn't bother me (as I haven't got anything on my mini that isn't also on my iBook), and - wouldn't you know - after the restore the little green icon appeared on my desktop once more. Have worked flawlessly ever since...
The moral: Try a restore and see if it doesn't get back to normal... 😉