You can use an external recording device, such as the Belkin TuneTalk.
It has a line-in 1/8" jack that you can record with.
But this forum is about using the rockbox firmware, which replaces the ipod firmware. The recording functions are still being tweaked by the developers and are not entirely working at this time.
But from what it sounds like, you are using the original, unmodified apple firmware. So just search around for some reviews on products that can dock onto the ipod and record.. there are a few different ones.