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I do warranty iPod repairs and we send a lot of out of warranty iPods back to Apple for battery replacement. In Australia it is advance exchange. I order the iPod it arrives and I send the customers iPod back.
When you receive a replacement iPod it is in exactly the same condition as a new iPod. There is no way of telling by looking at it if the unit is new or refurbished. The outer case is always new because the serial number is engraved on the back of the unit.
This is a major selling point. Most iPods that come in are pretty beat up and people are paying for a new case as well as a battery and are generally happy with that.
If you are concerned about your data then a back up and restore before handing it over is only prudent.
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