then i came across this on http://forums.vnunet.com/thread.jspa?threadID=105769&tstart=210:
Re: ipod Nano hold switch remains on
Posted: 25-Apr-2007 22:15 in response to: Colinzzz
I had the same problem (stuck on hold and the switch was obviously faulty) with an out-of-warranty 2GB nano. It wasn't worth the cost of the repair so I had nothing to lose by trying a workaround. Here's what I did. After taking the cover off and removing the screws that hold the main board to the case, the hold switch's contacts were visible on the front of the board. There are three contacts (very tiny) but all the switch does is connect the center to either of the end contacts making the hold on or off. All I had to do was roll up a speck of tin foil and wedge it between the center contact and the "on" contact. Then I locked it in place with a couple drops of clear nail polish. No more "hold" function, but it works great!.
So, I opened the thing up. ( You can learn how to do this here: http://www.powerbookmedic.com/free-ipod-manual/ipodnano.pdf )
I couldn't get the tinfoil fix to work, so i just soldered those little switches together (on the back of the logic board where it says "hold switch contact area" you'll see three little metal patches - that's where to solder). And it worked again perfectly! Like the post said, no more hold function, but it would play....so what to do about the hold? How could I put it in my pocket or bag?