Thanks for the replies, after searching around the net I found this bit of info that worked for me...
Once the iPod is connected and set to operate as a hard disk on your PC exit iTunes. Go to the iTunes directory on the Windows machine (My Music/ iTunes by default) and delete the XML file and the ITL file which is the library database installed when you hooked up the iPod.
With those files deleted the iTunes library is now empty as it should be for this process. Navigate over to the iPod in My Computer and make sure you set the folder options to show hidden files. Find the hidden folder called iPod Control and even though it's filled with many files with nonsensical names this is in fact the music library on the iPod. Copy that folder to anywhere on the PC which will take a while if you have a lot of songs. When this copy is complete right click on the folder you have just copied to your pc and click "properties". then uncheck the hidden box and uncolor the read only box.
Now open iTunes and in the Files menu tell iTunes to Add a Folder and select the iPod Control folder you just copied over. You could actually do this straight from the iPod without copying them all over but I was nervous something might happen to the library on the iPod so I copied them first.
Before you do the Add a Folder mentioned above make sure iTunes is set to manage your library and to copy files when adding to iTunes. This is important to get iTunes to organize the songs using the ID3 tags in the song files you just copied over. That's it- you have all your iPod songs now properly copied to the desktop and nicely organized and in the iTunes database. Note that when you first connect the iPod to the computer after you set iTunes to auto-sync it will wipe the iPod clean and sync the new iTunes library back to the iPod. It seems like a silly step but since the two libraries are the same anyway it doesn't hurt anything, it just takes time. It is necessary to make sure the databases are identical. Once it's done you can delete the iPod Control folder you copied on the desktop since iTunes has copied the songs into it's own directory tree.
