I used my 3G iPod for months without even considering that Smart Playlists updated on-the-fly. It just wasn't happening. When I learned from others that it should work (they have other iPod models), I've been going nuts trying to figure out why it's not working.
I know I have the lists set up correctly because when I sync everything works as expected. Without going into details, I have seen some evidence of real time, on-the-fly updating (by creating some very simple playlists with single criteria, etc.), but when I use my real playlists it doesn't work.
What are the rules? Can you not use certain critia? Can they not be nested to deep? Does anyone have this working on a 3G iPod? I can't find any details information on the web.