Hopefully someone out there has had the same issue and figured out a way to resolve this:
About 80% of my iPod is full of music, the rest is full of Audiobooks, Podcasts and Church Messages. The only time this is an issue when I go to Shuffle Songs on my iPod. I get a mix of all the above. Has anyone figured out a way to use the Audiobooks top-level category on your iPod or the Podcasts category at the top level? I suppose I could group everything into very narrow genre categories and just shuffle according to the genre, but I'd rather not have to. Any ideas?
I think I've fixed the iPod portion of my issue above. I nuked my iPod, reloaded the firmware and reloaded my music. I had updated my firmware before updating iTunes before, so the two seemed to be out of sync. This has moved all of my Podcasts into under one of the top categories. Still not sure how to use the Audiobooks section.
I figured out how to use the Audiobooks section on my iPod. You have to first convert the files into apple's AAC format and then rename the file extension in order to take advantage of the embedded bookmarking in the file, per this article. Secondly, you need to set the category to Audiobook, per this article.