OK,

So I know that a iPod can be used as a external storage device (I have an 80G 6th generation)

I also know that itunes can still be easily used when the itunes music library is stored externally.

I want to merge these two ideas and have my itunes library in storage on my iPod, and still maintain usability.

Problems I can see are..
My itunes telling me that it cannot sync with the iPod as there is no music library.
This can be over come by telling itunes not to open automatically when the iPod is connected, and changing the itunes music pathway to accommodate the move

Are there any other things I should consider? Has anyone tried this? Will it work?
There is surprisingly little on this specific topic online

Any input will help, thanks

I would say just to go for it and try it out, if worst comes to worst you will have to just delete your itunes from your iPod, but most likely if something doesn't work you should be able to just move it off the iPod and back onto the original HDD.