Solution to Smart Playlists not dynamically on iPod!
From Apple today:
If you have an iPod with a Click Wheel, Smart Playlists may stop updating dynamically after you update your iPod with iPod Updater 2005-06-26 or later. For example, if you rate a song on your iPod, the rating appears, but that same song won't appear in a Smart Playlist based on the same rating on your iPod. But this can happen with a Smart Playlist based on any criteria.
Use the iPod Updater 2006-01-10 or later to resolve this.
Note: This issue does not affect iPod nano or Fifth Generation iPod.