This may be complicated,

A friend of mine was shoplifting from the store he worked at and got caught. He was searched as he was leaving by a plain clothes store security and questionned about an I-pod he had in his jacket. He told them he had brought it there before his shift so they let him go. He's worried now the next time he goes to work they'll arrest him because they saw it on camera. I think he's paranoid.

#1. If they let him go out of the store can they arrest him when he comes back?
#2. he's 20 years old, can he got to jail for something like a $200 I-pod if he's never been arrested before?
#3. If they confront him should he confess or just deny it?

I realize it's unethical but he's really nervous.

#1, yes they can arrest him if they can prove he stole it. And if they have him on tape or he can't produce a receipt, they may be able to prove it.

#2, its unlikely he will do jail time for a first offense, but it could be on his permanent record as a conviction.

#3 If they question him further he needs to lawyer up and not say anything until he talks to one.

Ok.. his next shift isn't until the weekend. Is there some kind of time frame in which the store must charge him? Or can it continue indefinitely? Could he be charged for trying to return the I-pod if I could conivnce him to? What if he were to quit? Could they charge him after he is no longer an employee?

There is a statue of limitations for how long he can be charged. I'm not sure what it would be for your area for shoplifting, but it would probably be at least 6 months. Yes, they could still charge him if he voluntarily returns it, but if he does so without it being opened they may not charge him, but will, most likely, fire him. Whether he's a current employee or not has no bearing on being charged.