The 2G Nano has two special modes that it can boot into called disk mode and DFU mode
Disk mode has existed ever since the iPod has existed. Disk mode is burned into the processor's bootrom, so this is pretty much always there, no matter what sort of tampering you have done. Disk mode basically makes the iPod behave as a massive storage device, allowing the computer to directly read and write the flash chips.
DFU mode is a relatively new standard for upgrading firmware that is used in many devices like the OpenMogo and the newer iPods. DFU mode is also flashed in the processor's bootrom. Newer iPods have both DFU mode and disk mode, while iPod Touch and iPhones have exclusively DFU mode. It is worth noting that DFU mode was implemented at the exact time that Apple switched from PortalPlayer to Samsung processors, and also exactly when the firmware was encrypted. There could be a relationship.