Yes... your guess is correct. Your IPod can boot the Linux. You see, Linux can boot anywhere and it's uCLinux this time. You can have an dual boot IPod with second boot option as the uCLinux. People have done this successfully and now playing with this. Even you can take that line literally, as you can play games.. yes games... in your IPod nano. As once you have Linux somewhere it's over. GUI is provided by podzilla. There are many customized builds exists for that. For more information, goto (sorry, I am a bad programmer) iPodLinux site: http://ipodlinux.org/
These are the tasks which you can perform with your IPod.
You can play MP3, OGG, AAC (for which you have the one)
MultiConvert - A program to convert any unit of any type to all other units of that type in "real time"
Periodic Table - Periodic Table for the iPod
viP - Text Editor
aalib - Portable ASCII art graphics library
Python - Write Python programs on your iPod
Ncurses - Write ncurses programs on your iPod
Wikipedia - Carry the whole WikiPedia around on your iPod
Hell lots of games.
- Play video... No need to pay extra bucks.. just wait for some more time to mature this tech.
You will never get screwed by doing this as you can always restore your iPod firmware again. Try this today if you have the one. And donate me Rs 14000 if you want me to do so :D
Take my words, one day, some Linux will boot in mind.