Its either the drive cable has got dislodged (quite common) or that the disk itself has failed.
Nothing to lose now except to open it up and try reseating the drive connections:
http://www.ifixit.com/Guide/iPod/ If that doesn't work then its new disk time - a good chance to pay a bit extra and put a larger drive in there while you're at it. Avoid ebay though - buy from a reputable dealer who has a no quibble guarantee / returns policy.
hth.