I'm wondering if a lawyer would say that you've never legally 'accepted' the iPod. I'll try to explain:
When you purchase any item, whether new or re-conditioned, you're entitled to a full refund if it's found to be faulty before you've 'accepted' it. In most cases, this just gives you time to get it home and check that it's working. Sometimes, however, the pre-acceptance period can be much longer. For example, someone might buy a hi-fi system which appears to be fully-functioning. (e.g. the CD-player and radio both work perfectly). However, several months after purchase, the owner tries out a function which he's never used before (e.g. using the system to amplify a signal from an external source). If it doesn't work (and is unlikely to have done so from the date of purchase) a court might rule that the purchaser had never fully 'accepted' the item and was therefore entitled to a full refund.
That example was fictitious but I've seen a case reported where a woman was able to get a full refund when she discovered (at the beginning of summer) that the air-conditioning wasn't working on the car she'd purchased during the previous winter. (A court agreed that she'd never 'accepted' the car). It's possible that an argument could be put forward that you bought the item as a Christmas present and it quickly became apparent, around Christmastime, that the item was not 'fit for purpose', so there was no point at which you've ever 'accepted' it. In which case, you're entitled to a full refund.
Whether that will help you depends upon your ability to convince the store manager of your determination to pursue your legal rights. Sometimes, however, a different approach is required. Take a look at the latter part of my post here:
http://www.theanswerbank.co.uk/Law/Question362 412.html
Chris