What to do with my water damaged iPod?

You could try that, although it wouldn't do you much good if you don't still have AppleCare on it. If you can't return it to Apple, I would say your best bet is just to buy a new iPod, usually liquid damage causes troubles with the logic board, which is a costly repair. So, between the chance of there being other problems with your iPod and the time and money it would take to repair it, it may be better to buy a new one. But, If your iPod is still protected by AppleCare, it is worth a shot.

Unfortunalty since you have no sort of warranty there isnt anyone who can really help you. Apple sometimes buys back ipods for scrap at least at the Apple store near me. If it is still under the 1year MFG warranty I suggest opening up the unit and cleaning all the corrosion off the unit and sending it in. Just make sure that it looks the same is when you opened it up. I've heard of many people getting the warranty voided from not putting it back together correctly.