It's not working with the new iPod nano, it is simply not detected.
I've used it for my 20Gb iPod since the first release and I never had any problems. It worked fine and the sound quality increased.
It's not just for putting your iPod volume at max as someone told. The main purpose is to keep your iPod volume level smaller and keep crisp and powerful sound.
Hope they release a new version which supports the nano.