http://www.appleinsider.com/articles/07/09/10/review_apples_new_ipod_nano_is_a_5g_video_ipod_in_a_nano_thin_shell.html&page=2

"A new Search function works slightly different than the previous one introduced in last year's 5.5G iPod. The Search field lets you enter items by letter using the clickwheel, and refined results popup as letters are entered. At any time, a click drops you into the search results, with list both albums and songs, as well as videos. It might take a moment to realize that entered letters can be deleted with a back click. Letters are entered by spinning the clickwheel and clicking on the letter. There's no way to search for numbers, so if you were looking for Feist's "1234," you're out of luck. There's also no way to enter a space.

However, since you are searching your own limited amount of content, you can probably manage to find what you're looking for with just a letter or two; even two letters breaks down a couple thousand items into a few dozen results to scan through. As with the 5G iPods, alphabetical letters pop up as you rapidly run though listings, making it easy to find needles in the 8 GB haystack even without performing a search. "