hah, I sat down with mine last night, for the first time, and was shocked at how tiny the instruction book was!! I almost stamped on the thing, and ended up phoning my brother and having a total hissy fit down the phone. Poor sod.
Anyway, I noticed that some cds would only allow me to download some of the songs, then everything would freeze and I would get a similar message. My advice is to delete eveything that you've downloaded and simply start again. Use a differerent cd to see if that helps. Then connect your ipod and update, to see what happens.
You can create new playlists and move certain songs (or whole albums) to a specific playlist, which will update automatically. I only found that out tonight.
I'm sorry if this sounds patronising, but I am fumbling in the dark with mine too, so feel like I should try to help you. Apple's site has help pages too, but they just confused me more. Give me back my Sony Walkman!