Seems to be somewhat of a common issue. Here are some instructions I followed which fixed it right up.
1. Since Win XP recognized my iPod (it appeared in My Computer as a drive) but iTunes didn't, right click on the iPod in My Computer and then format the iPod hard drive (this takes some time).
2. Disconnect the iPod and reboot your computer.
3. Restart iTunes
4. After this, I connected my iPod with iTunes running, and lo and behold, iTunes recognized the iPod.