Thanks for the reply and the image of the manual. I'm pretty sure the 3G ipod has the latest firmware available but I'll double check again tonight and try restoring it again. That's interesting about the 99 song limit.. I wonder what happens when you shuffle a playlist with more than 99...
It's weird that the 3G acts like it wants to work.. It will start to play 1 song on 'CD7' when it's first plugged in, but then you can't switch to the next song. It kinda recognizes the BMW1, etc playlists too. If all I have on the ipod is 'BMW2', presets 1,3,4,5 will all show the error message when it can't find the corresponding "BMWx" playlists, but preset 2 acts like it tries to play something but can't.