From Apple’s [real] press release about merging the iPod photo line into the “white iPod” line:
iPod’s color display provides a crisp, clear full color experience for users to take their entire photo library with them or for viewing album artwork, calendars, contacts and games. The 60GB iPod holds up to 25,000 digital photos, and the 20GB iPod holds up to 20,000 digital photos.
The challenge is in the last 5,000 photos, appearently.