Hey Shauk:
I just want to be clear... I'm not trying to turn this into a pissing contest or anything. It's certainly possible that there is a cable malfunction, but this doesn't sound like one. Frankly, I'd be astonished if it was. My perspective comes from being the guy at the other side of the Genius Bar. We see lots of cases of corruption, and hardly any of cable failure. Here's what makes me think that it's a corruption:
1) It happened when the iPod froze during a software update.
2) The cable worked before and since
3) The iPod is recognized as a drive by the PC.
4) The only verifiable cable failure I've seen is from a girl who wound it too tightly and broke the wires inside.
Ironpham, I had an iPod nano today that was behaving exactly as yours is. I was able to bring it back by doing the following.
Hook it up to the PC while both are on. Let the PC recognize the drive and verify that iTunes isn't seeing the iPod as an iPod. While still hooked up to the PC, perform a hard reset (menu and play together for ~10 seconds, until iPod restarts). It may take a few seconds, but at this point iTunes should recognize that there is an iPod attached. In the summary tab for your iPod (in iTunes), click the restore button. This will wipe the iPod entirely and replace it with a new installation of the software.
Alternately, use the laptop to restore the iPod to factory condition. At the very least you can rule out software as the problem this way. This is the first thing the guys at your Apple Store will do.
If that doesn't work... Go to the Apple Store. Unfortunately, you may end up in a bind if they can see the iPod working perfectly. On the other hand, they may be able to make specific suggestions of things to try with your computer. If you don't want to wait, you get 1 phone support call for free in the first 90 days. Apple Care can usually walk you through things on the phone.
Last resort, you don't necessarily need an external drive. Since the iPod is showing up as an external drive, you can move your music over using disk mode.
File moving installations for iPod in disk mode. There is a part about adding the music files to the new iTunes library.