Power button does seem to work

A power button that is "hard" to push, or seems "flat" or already pushed in, is a common problem. There is a very small plastic/nylon tip on the power button itself and this usually falls off and gives the effect of a dead button. You should feel a "click" on a good power button. However, don't rule out that a dirty button (all gooped up for lack of better words) will do the same thing. As for what it does, It is both a sleep/wake button and power button. If a simple click is done, it puts the iPod to sleep and reverse if already in sleep mode it will bring it out. If you push and hold, it will shortly bring up the option to power off. Hope this helps you out a bit, and I will do my best should you need any advice if you decide to attempt the fix.

Are you feeling any action in the button? Meaning when you press it down do you feel it going down? It could be the button itself but more likely it is the connection to the ribbon inside. Have you opened it up at all? Those can go out after a while. Check to see if you iPod is under warranty through Apple. If so you can just bring it in and they will swap it out. Make sure to back it up beforehand though.