64 sector cluster are used. Even if 32 sector clusters are used, it should be able to cover 1 GB.
[link|http://support.microsoft.com/kb/67321|The Gospel] according to Microsoft.
You couldn't be hitting a number of files limit which according to [link|http://en.wikipedia.org/wiki/File_Allocation_Table|this] is 65,517?
Incidentally, your link shows a 4 GB player. Going to the 1 GB player [link|http://store.digitalriver.com/servlet/ControllerServlet?Action=DisplayPage&Locale=en_US&id=ProductDetailsPage&SiteID=siren&productID=41320200&Env=BASE|page] shows 480 song limit. Could that 480 be some kind of a player limit?