I received a 5GB iPod for Xmas and immediately put 3.5 GB of music on it. My iMac's iTunes library, however, is 6GB+, so I imagine I'll be doing a fair amount of adding and deleting from my iPod.
I am very much a newbie, but it seems to me the way to manage your iPods library is through playlists. Rather than having it copy everything to the iPod (what happens if your iTunes library is larger than your iPod, I wonder?), I'm having the iPod only subscribe to selected playlists. It seems that if a song is on a subscribed playlist, the iPod will download it when plugged in to the host Mac. If you unsubscribe from a playlist, and the song isn't on one of the other subscribed playlists, the song is deleted from the iPod next time it's plugged in (at least that seemed to be the way it behaved when I tested it last night).
That's the plan, for now.