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I just use my iPhone which I assume would be exact same as iPod - yes, it does support playlist, however it does NOT support sub-folders in the playlist (for example if I created playlist "Riding Music" and in that playlist have sub-folders by genre or artist - it will not see those sub-folders) it also shows the album cover on the screen while music is playing.
I never tried with the thumbdrive so can't really compare.
BTW - at first I was considering to use a thumbdrive but ended up using iPhone because it keeps my phone charged all the time, and I can play things like Pandora, Spotify, youtube. But I have to admit - I often make second trips to my bike cause I forget my phone in the compartment...
I use playlists on my thumb drive all the time. I create them in Windows Music Player and move them to the thumb drive ... Just have to make sure that the folder path is the same ...
7 Surprising Harley-Davidson Products that Are Not Motorcycles
Slideshow: The bar-and-shield logo shows up on far more than motorcycles, some of the company's most unexpected products have nothing to do with riding.
Slideshow: From the troubled AMF years to modern misfires, these bikes earned reputations for reliability issues, questionable engineering, or disappointing performance.
Crazy Bunderbike Build Looks Amazing, But Is It Impossible to Ride?
Slideshow: The Swiss custom shop has taken a Harley Softail and stretched it into something so long and low that it looks closer to a rolling sculpture than a conventional motorcycle.
Engraved Rebellion: Inside Bundnerbike's Glam Rock II
Slideshow: A standard cruiser becomes an intricate metal canvas in the hands of a Swiss custom house known for pushing Harley-Davidson platforms far beyond their factory brief.
Slideshow: Harley-Davidson's challenges aren't abstract; they show up in dropping shipments, shrinking dealer traffic, and strategic decisions that aren't yet translating into growth.