An answer to your second question, the library is as big as you want as long as your HD can fit it. You can either choose songs you want to be in your iPod or have all songs to be put to your iPod. To choose songs for your iPod you can do in two way. First, when you plug your iPod, your iTunes will display your iPod informations and other stuffs on "Summary" tab. Check "Manually manage music" or something else. And then on your left navigation bar, you can see an arrow on the left of your iPod icon (the one that looks like Play button). Click it and it will show its submenu which includes "Music" "Movies" "TV Shows" "Audiobooks" "90's Music" "Music Videos" "My Top Rated" and there rest of your playlist. Now all you have to do is dragging all music you want to "Music" submenu playlist.
The second way, you have to have a playlist which includes all songs you want for your iPod. Then, on your iPod menu (where it says "Summary" "Music" "Movies" and such) click on "Music".
Under "Sync Music", choose "Selected Playlist" and check the playlist that you have just made for your iPod.
