The Apple Files

Creating a folder named Demo Mode on your 5G iPod and renaming a video of your choice Demo in iTunes will activate that video as a screen saver on your iPod when it’s charging!

[Via francisreal's .mac webpage]

As noted,

This will only work on

• 5^th Gen video iPods
• with the latest firmware
• when the iPod is charging
• but not playing any tracks

Read on for step by step instructions with screen shots.