couple of newb questions...

I think from reading your post you need to prioritise what it is you want and what you want to achieve.

In my opinion you need to look at getting a good set of headphones or earbuds. Work out your budget, do the homework and get that sorted.

Once you have great cans you can then decide where you want to go with the source equipment.

Generally speaking freebie earbuds supplied with mp3 players are bettered by all but the cheapest headphones/earbuds, so dont look at a new player as solving both issues.

I have a 3G Nano so let me take a shot at this.

First -- do not upgrade your player, that is not the place to start. You need to start with good IEMs. Read the reviews here. If you can find used Shure 500/530's, they sound fanastic with the Nano. Get Comply tips.

Now be sure your music is high quality, Apple Lossless or high bit rate MP3's, 256 or 320. Without modding, the Nano does not support FLAC. It does support WAVs, but WAVs cannot be easily tagged.

You didn't specify if you were PC or Mac based. Are you ripping from CDs, or buying on-line? (You did mention on-line ... Amazon MP3's are generally better sounding than iTunes). On a PC, EAC+Xplay+Windows Media 11 are a great way to get music on your iPod without iTunes. Xplay is not free, but cheap.

Adding a portable amp to your Nano is the next step. Again there are many choices -- an RSA Shadow (there is one FS now) fits nicely underneath the Nano, and takes most IEMs to an amazing level of SQ.

Nano + Lossless (or excellent high bit rate MP3s) Music + good portable amp + high-end IEMs and you are done. I have demo'd Nano+WAV+Shadow+Shure 530 vs Wadia 781+CD+Orpheus (one of the finest home rigs you can put together) and the difference is audible but, believe it or not, rather small.

Buy everything used. Nothing new.

Yea I don't think that upgrading your player is the first thing that you want to do right now. I would suggest to read around and learn a lot about the most common equipment around here available to you at stores or online (depending on where you want to buy from).

Read about the different types of headphones, the qualities of them, and the general sound signatures that are going to come from them.

After you read up I would say to make sure that your songs are at a high enough bit rate to get some good music out of them. If all of your stuff is Limewire downloaded or music under 225kbs, I would think about getting better files (and don't just convert those low bit rate files into higher ones because that does NOT increase the sound quality).

Then I would say to go and decide what exactly you want out of a headphone. If you want a "fun" headphone or a more analytical one... bright or dark. Bass or treble. Open or closed. These and countless others are things that you have to take into consideration on what you want out of your music collection; the actual genre of music that you listen to also has a big impact on what type of equipment you would want to buy.

But yea it's pretty overwhelming at first (at least for me it was). So like you were saying, read as much as you can and educate yourself so you don't make the mistake of buying something and not liking it; it might happen eventually due to the lack of a possible audition before hand but it's always good to know everything about something before you spend 100+ bucks on it at the least.

And if you ever have any questions or anything feel free to PM me, I'd be happy to help with any questions you might have

Welcome to Head-Fi and sorry about your wallet ^_^