I am now on my third 40GB click-wheel iPod. The second one failed the same as the first, with the hard drive making strange clicking noises. Occasionally on bootup the iPod would display a file-folder icon and suggest http://www.apple.com/support/ipod. Most songs wouldn’t play, presumably because they could not be read from the disk, and plugging the iPod into a computer caused that computer to basically hang until the iPod was unplugged.
Thankfully, my applecare still has no expired, and I walked into my local Apple Store and walked out with a shiny new iPod in the same visit. Mad props for good customer service. Additionally, $399 doesn’t seem so bad now that Apple has given me 3 of these things.