Under a combination of EU and UK laws, most electrical items should be expected to last for a minimum of 6 years. If it goes wrong, due to an 'inherent fault' within this period, the retailer is obliged, by law, to offer a remedy. (This usually means either providing a free repair or giving you a replacement item, at the retailer's discretion).
If your iPod had failed within the first 6 months, there would normally have been an automatic legal assumption that the failure was due to an inherent fault. (e.g. poor manufacturing or defective components). After that period, up until the end of the 6 year time limit, it's theoretically necessary for you to prove that the failure was due to an inherent fault. In practice, most retailers recognise that, in the absence of contrary evidence (e.g. dents proving that you've dropped the iPod) a civil court would rule that it's most likely that the failure was due to defective components or because of poor manufacturing procedures. For this reason, most retailers won't risk losing a court battle and simply accept that it's their responsibility to rectify the fault.
Contact the retailer and state that your iPod has failed. Further, state that you're confident that a court would rule that the most likely cause was an inherent fault. Then demand that the retailer rectifies the matter. If you don't get satisfaction, contact your local Trading Standards office or, better, the Trading Standards office which covers the area where the retailer is based.
There's no reason why you should have to pay anything for the repair of your iPod (unless you really did drop it!).
If you make the mistake of paying for a repair, you might find that it's impossible to get a repair done other than through Apple's offical service team (at a cost of �166). (Many modern electrical devices have components which are made solely for one manufacturer and are only available from that