Ipod or even better the Ipod Touch is for travelers, commuters, or people with lots of time spent w/ said device. Nano is for people who have limited use of the device or need a smaller device for working out.
I have a Nano for any cardio that I do and the only thing I really miss is the availability of an FM tuner. My gym has the TV sound broadcast via FM transmitters and I can't hear the programming. Reading subtitles is for deaf or French people.
Reliability: I had a 1st Gen Nano and it broke(battery+resetting itself). My 2nd Gen one seems fine though.
My wife has had a regular Ipod for 4 years now without any problems.