I was having this problem and searched on Apple's discussion boards, finding I wasn't alone. The following solved the problem, and is reproduced here since Apple's discussion boards require a login.
The problem was due to escaped unicode characters within the AlbumData.xml file. I first suspected it was the tilde-n combination within many of my photo comments. When using BBEdit to grep them out, I noticed an escape sequence for a unicode character in the search string. Unfortunately, replacing them in the AlbumData.xml file didn't work. On relaunch iPhoto would put the characters back, which meant manually removing a comment sequence from a series of about 120 photos. Finding a script on Apple's site called 'Speak Comments.scpt' and commenting out the lines for speaking the comment (lines 15-18) and adding the following line before them:
set the comment of this_photo to ""allowed me to remove the problematic comments from just the set of offending photos without having to do them by hand. Upon completion, iTunes recognized iPhoto's libraries and synced them to the 5G iPod without a hitch. Script available from:
http://images.apple.com/applescript/iphoto/archive.sit
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