Ouch. Well I guess the chances of your iPod surviving really depend on the amount of water damage... I can't imagine the rain would have killed it, but then again you might live somewhere that experiences torrential downpours.
I think water-damage voids the warranty, but I'd check with an Apple rep in store/online or visit one of their official forums like discussions.apple.com.
I've heard that leaving your device in an airtight container with a few inches of rice seems to work - but I don't know if that's an iPod myth...
Finally, there are several companies that "rehab" and refurbish damaged Apple products. You may have to part with some $$$, but it'll be a lot cheaper than buying a new iPod!
Out of curiosity, are you talking about the 5th generation iPod or a 5th generation Nano? I ask because I think the first is discontinued, so you may find less support available...
