Haven't actually installed or backed-up to an iPod, but Carbon Copy Cloner does what you want without drama to another internal drive, and will let you skip somepotentially unnecessary files.
I would suggest moving your music library from your User folder to another folder on your hard drive (since you obviously don't need to doppelgang this onto your iPod). You will have to change your iTunes preferences to reflect this. Plus you don't want to start wsith a "fresh" system, but one which maintains y9our documents and preferences, right?
I was able to backup a fairly robust OS X System to about 7 gigs on a clone disk. I can boot from this with no problems to date.
Otherwise, just do a fresh format and install. But then again, it's all about what makes you and I special, and keeps us going.
[ 04-07-2002: Message edited by: buchrob ]