Well, iTunes does work kinda well... and they were also right with what the average customer wants, given their success...
What to do:
Download ephPod:
http://www.ephpod.com/
That'll allow you to copy music from the iPod to the computer (iTunes doesn't like doing this).
Then, once the music is in some folder (for example on your desktop), run iTunes without the iPod connected. Add all the music to your iTunes library by dragging folder from desktop to iTunes. Click advanced -> consolidate library, to put it in the proper place. Remove music from desktop to recycle bin. Make sure all music is there and plays ok (and has same number of tracks as on iPod -- see settings, about on iPod to see track count).
And then connect iPod, and it'll resend all the music, but you shouldn't lose anything by doing this.