Didn't see this thread before...
I'm pretty sure I saw something in the manual about USB/HDD folder depth being limited to 7 deep. There's also something in there about play order and stuff like that too.
Definitely saw the FAT32 thing too, but FAT32 has a 2TB limit? It wouldn't surprise me if there was a limit in the RNS somewhere though. 750GB 2.5" drives are around $100 now, so that's a tempting thought, if you can still fit it in the console with the space the MDI takes up. I also found the USB interface to be a bit slow, so I think a large HDD might cause some grief anyway.
I'm not aware of a way to make a play list based on USB? That seems like the primary advantage of an iPod vs raw storage. You do get much more flexibility with the raw storage in terms of folder structure (but that's just one more music repository to manage then).
I'm going to be picking up a 3rd Gen 64Gb Touch in Sept on the cheap when the new 4th Gen Touch comes out as my old Nano didn't survive the washing machine very well (damn jetlag)... I just don't want to have the hassle of managing music in so many different places (I use my iPod at the gym and flights, so it's not just for the car).
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