most '.mpg' files are either mpeg1 or mpeg 2; neither format is supported by the video ipod. Use quicktime pro or podner to convert the files. both apps are relatively cheap, and worth the money (espcially podner).
the ipod is more likely to support files ending in '.m4v', '.mp4', or even '.mov'
either way it has to be an mpeg4 or h.264 file
enjoy your ipod! i love mine.