Rockbox has pretty great playlist support. You can use m3u playlist you generate and drag those over or rockbox can create them. The original iPod interface is much nicer. Rockbox can be a bit cumbersome but you can find some nice themes to pretty faithfully recreate the look and feel.

Put Rockbox on it and drag and drop any audio file onto the iPod like you would any removable media. You can also play flac, ogg, and many other formats not supported by the og OS.