So you get the same diagnostic error message as me in verbose mode?

I have the Fujitsu 250 GB hard drive, but the hard drive shouldn't have anything to do it booting from the DVD drive. I have the Optiarc DVD RW AD-7561S ATA Device, which is the same thing as yours but with lightscribe.
Also, if you plug in your nano to your computer and let it load with itunes, the main screen will have an option that says "enable disk use". When you enable disk use you can plug it into your computer and use it as a jump drive. Be aware that you will probably have to format it and therefore wipe all of your music, so back it up.
I have a 1TB hard drive with a windows partition, so I've been reading about how to format a partition to show up at boot, but i've been unsuccessful so far in finding exactly how I need to format it and how to save the iso on the drive so that when I boot from USB, the computer will know to use that partition and boot the image. If you know more about this and can help me out, please let me know (because you will probably have to do the same thing for your nano).
I am determined to get this to work!!!
P.S. I also have a nano that I can try to boot from, I just have this hard drive also so if you discover a way with the nano, please put details here.
But I think the setting for the nano you are looking for is "enable disk use" - it will then show up in my computer and you can do whatever you please with it