I can’t find any reference to this anywhere else, but I’m guessing that Apple might be releasing a firmware update for older iPods that allows them to download and play games. If you click on the “Games” tab when an older iPod is connected to iTunes 7, it says “A software update is required for this iPod to support Games. Go to the Summary tab and click Update to get the latest software for this iPod”.
UPDATE: Yep, it does – the next time I opened up my iPod, it offered to install new firmware with games support.
UPDATE 2: Except that I can’t get it to work. Although the iPod is updated, when you plug it in it says it was not copied to my iPod because “you are not authorized to play it on this computer”. So what gives?
UPDATE 3: The answer is simple: you need to re-authorise your computer. Even if you’ve bought the game and/or a few songs, you need to reauthorize again for the game to work. Duh.