SteveG,
Thanks for the reply. I haven't done much more testing with this problem since I managed to get my music on the iPod in chunks. When I originally tried to sync my 3500-song (15gb) playlist, I made sure on each attempt that the iPod was entirely empty (initialized from MC). MC properly reported that there would be 3.5gb of space left after the sync, but then it would fail. I can't help but think the "out of memory" error is directly related to the other issue I noticed - slowly declining transfer rate. It seemed as though the transfer would fail around the same time the transfer rate had dropped to roughly 1mb/sec. This, of course, has not been scientifically tested...
I also cannot exactly determine when this began. I just decided one day, several MC builds ago, that I would initialize my iPod and start fresh with some new playlists. It could very well have been like this all along.
In other news: Thanks for the iPod foreign character fix in the latest build! Works great.