i think it all depends on your listening habit. with my old 10GB 2nd gen iPod, i love the fact that i can browse through a good number of albums, ready at my disposal. unlike Phil though, i'm a strict album listener and very rarely do i listen to shuffle mode or specific particular songs unless it's a mixed CD/compilation i made for myself or someone made me. i tend not to go to another album until i finish listening to the first one. that might not fit the requirements of a Nano, but certainly with a full sized iPod.
another issue is that storing a larger music collection on the iPod means that you're able to clear hard drive space (if that's a concern). i have a good number of albums on the iPod that's not on the comp's HD, but of couse i have the original CD's that were ripped from it, so i'm not too concerned about lost mp3's.
also, it might also depend on how you're going to be using it. i use my full sized iPod on my daily commute, and i always carry a messenger bag with me, so the small form factor of the Nano really isn't an issue. the full sized iPod is small enough to tote around with my bag.
although on my weekend romps to the city, i don't want to be bogged down with bags and full sized iPods, so i have my 1GB Shuffle for those days. just load a few albums and i'm good to go. i'm sure the Nano would work extremely well in this respect.
hope this post did more good than harm, LOL.