My 2 year old 2G iPod began losing battery capacity, often dropping to two bars within an hour of initial play. I figured that was normal. Two years of heavy use and probably more than the 500 charge lifespan of the battery. A good excuse to get a new iPod (some logic!) though I wanted to wait for 4G.
For reasons other than the battery, I decided to do a complete restore of the iPod as a way to defrag the drive. This is easy for me, since I use a Mac and auto sync the iPod anyway.
In any event, my battery seems to have been restored to full power. After two weeks (since the restore) I am back to getting around 10 hours of play time. The battery indicator stays pegged at full for at least two hours. Perhaps this will relapse to the old behavior in a while, I really cannot say. Maybe the drive was really fragged and the restore makes life easier on the Pod.
Nonetheless, it is something to try if you find your aging iPod losing some juice.