How the iPod handles this has changed several times so depending on the version of MC you're running and the version of the firmware on your iPod it might behave differently but this is how it currently works...
The iPod sorts files based on the entry written to the Name (track), Artist or Album fields in the iPod database unless there is an entry in the Sort Name, Sort Artist, or Sort Album fields. In that case, it sorts based on the sorting field value.
Our implementation doesn't write anything to the Sort xxx fields so the iPod will sort by the Name, Artist and Album values. For artists we move all articles ("a", "an" and "the") to the beginning of the name prior to writing to the iPod database, so "Beatles, The" always becomes "The Beatles" on the iPod and will sort in the T's.
If, in your case, "The Beatles" is showing up in the B's. "Beatles" must be getting put in the Sort Artist field. We didn't put it there - I think that is the default behavior or iTunes. Go into iTunes, right click on the file, select "Get Info", select the Sorting tab and note the values in the Sort fields.
Note: We only move the articles to the beginning of the artist name, not for the album of track names, we take them as they are.