It’s not much of a hack – JWhelton simply removed an app and looked at the underlying OS – but this is proof of concept stuff that shows that the iPod Nano is essentially a stripped-down iOS device with severe limitations.
Interestingly, the device also potentially supports TV-out, iCal, and passcode locks, although that good be vestigial code from the real iOS.
He’s releasing a tutorial this or next week if you want to try it yourself.