Perhaps the memory chip of the iPod has too much bad blocks, including on the OF partition, blocking the OF from starting properly. If this is the case, I don't think there's any solution other than replacing the memory chip, something that might not be worth the work and money and might even be impossible (I don't know how the memory chip is connected in 1st gen nanos).
I recommend however that you restore the iPod again and make sure you safely eject it before disconnecting, even if you have done that, there's still a chance the restore wasn't done properly the first time (perhaps you disconnected without iTunes saying it was safe to disconnect?).