It's possible to run OS X on an iPod, but speed is a pain in the ass. It'll run slower than you could possibly imagine and will take a good chunk of your iPod.
I dunno, maybe I'm the only one who *needs* 4 Gb of music wherever I go
Apple says that installing OS 9 or OS X on an iPod will work, but doesn't officially support it. Personally, I have a copy of OS 9 and TechTool Pro 3.0.6 on my iPod, simply because there are no disk utilities that run natively under OS X besides Drive 10 (which kind of sucks). This is great for when my comp has problems, because I can just boot up off of it, and fix/defrag my hard drive.
I have to admit, it is slow, and I don't recommend running an OS off of your iPod all the time. But for emergency situations, I'm sure it can be a lifesaver (I haven't had a great emergency situation yet, but I'm prepared. I really should get a copy of the latest Norton and DiskWarrior on there too, though.) I imagine OS X would be even slower because there's so many files that need to be accessed.