Chosen Solution
I swapped my HDD for a 128gb mSATA SSD using a ZIF adapter. Everything was working (iTunes detected and restored the iPod successfully, it even showed the 120gb capacity) until I snapped the panels back together, then the iPod started getting hot and the battery drained very quickly. I separated the two halves again, and again it started working. I’m not sure what’s going on.
I would make sure that you have enough clearance between the battery and the back cover. It sounds like it is shortening out due to not enough clearance.
