I too have a 2GB iPod Nano. I have over 60GB of MP3s loaded on to iTunes. And I haven't purchased anything from iTunes Store yet.
A lot of what I have I picked up of the Internet pre-Napster shut down. I have only have one or two music files that would not load due to the file extension not being compatable with iTunes.
I used Music Match previously but like iTunes better.
Also if you use software to rip MP3s off your CDs then you will want to make sure that it is setup to generate the ID3 tags for you. If you use iTunes to rip your cds, it will get all of the CD information (artist, song title, genre, album, etc) automatically from the Internet and automatically generate the ID3 tag.
When I first installed iTunes I told it to manage my MP3 for me and to copy them to the iTunes music folder. So all of my music is in one central location. When I drag and drop an mp3 to iTunes it automatically copies the file and adds it to the library. Like transio and kobie said if you have an mp3 that does not have the ID3 tag set up then iTunes does not know what to fill in the fields with. I'd say 75 to 80 percent of the songs that I have downloaded had the ID3 tags setup.
This is not something unique to iTunes, any other MP3 players would have the same problem.
Also just a side note since I have way more music than my Nano can hold I kept getting the "can't update iPod, not enough space" error. To correct this you can do one of two things, if you go to the settings menu, iPod, tab you can tell it to only download checked files from the "Library". I tried this but if you also listen to music out of the "Library" while at your PC, iTunes only plays the checked songs. So I did not like that because I wanted to listen to everything not just what was synced to my iPod.
The other option is to create a playlist or lists, then in the settings specify the iPod to only download those playlists. You can check the files in the playlist to designate that the file is to be downloaded to the iPod. Files checked in the playlist are independent of the "Library" therefore it will not interfear when you play songs on the library. This works much better for me.
Also iTunes will sync with other MP3 players not just limited to iPods.




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I have much of my work backed up on my ipod with no other backups!!! 
