Correct, it will not play an iPod, it will however play movies (mp4), music (mp3), and pictures that are on a usb flash drive. I tried a little hard drive and it didn't have the power to drive a hard drive. If you had an external power plug for the hard drive it *may* work.
My solution is to just use one of my old style Apple TVs that has an upgraded hard drive (500GB). This allows me to store files locally on the Apple TV, I can sync it while it's parked when home, and take it all on the road with me. It hooks up through the HDMI port on the TV. (basically bypassing the crappy ZX700