Step 1: Parts and tools
The tools I used were a sharp knife, an electric multimeter, soldering iron and solder, a pair of diagonal wire cutters, and some wire strippers.
Step 2: Cutting away the dead wood
Obviously the zip power supply should not be plugged in unless we are ready to test it with the multimeter.
First we'll prepare the (unplugged!) AC/DC power supply. Clip off the DC plug end, split the wires back about 1" being careful that the wires are both individually insulated (not exposed), and strip them, exposing ~1/4" of wire.
Check again to make sure that you haven't somehow left the adapter plugged into the wall, and if not, grab the bare wire, and twist it with your fingers to make it nice and tight.
*danger* During this step under no circumstances let the bare wires touch *danger*
*warning* Be familiar with the proper use of your multimeter *warning*
Set the multimeter to measure DC Volts, and test the wires with the adapter plugged in.
Once you have determined which lead is positive and which is negative, write it down.
If you get it wrong, you may damage your Ipod, and that would suck.
Now to prepare the PS2 to USB adapter, you'll need a sharp knife.
Slice the outer plastic on the adapter from the PS2 end of the adapter to about 1/2" from the USB end, pull it open, and cut away the epoxy glue and wires inside leaving only the soldering lugs on the back end of the USB plug. This may require the diagonal cutters again, but I did it all with a sharp pocket knife.
Also, don't cut yourself like I did.
The picture below shows the pinout for a male USB plug, like the one at the end of your Ipod adapter. It's probably best to clip off the data lugs (middle two) before proceeding to the next step.
Step 3: Assembly
Test it with the multimeter before you plug in your Ipod!
Now you can fill the void in the usb adapter with silicon glue, j.b.weld, epoxy or whatever you prefer, and it's completely tricked out!