I simply copy my iTunesMusicFolder (using rsync) to the USB drive on the Touch and then let the server scan that entire folder. That works very well after some cleanup of the iTunes library (which included a number of files that caused the TinySC of the touch to crash).
It would have been nice to have an rsync client directly on the touch. As this does not exist, I just do it via smbd/nmbd shared network drive ,which is really slow. Alternative is to unplug the drive from the touch and plug it onto your PC running iTunes from time to time to copy the disk.
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