Is the software intended to copy the music directly into iTunes?

If there is an option for it, here is what might work best. Run the software with iTunes closed and copy the music from the iPod to your hard drive. Disconnect the iPod then open iTunes and drag the folder with the music from your hard drive to iTunes. After the music is safely in iTunes, connect the iPod, sync it, going past that error message and letting the iPod be erased to re-sync.

I've used similar software on a Mac in the past and done it the way I described above. Maybe that might help. *shrug*