I wonder how often this happens. He was at work when it happened, he works at a kiosk in the Atlanta airport. He was worried that the TSA might have thought he was a terrorist:

The new iPod Nano is hot. But one Douglasville man said his old Nano got even hotter — hot enough to burst into flames.
“So I look down and I see flames coming up to my chest,” said Danny Williams.
Williams said the burn hole from the pocket of his pants marks the spot of his 15 seconds of flame. He said he had an iPod Nano and an glossy piece of paper in his pocket. He believes the paper shielded him from being burned.
“I’m still kind of freaked out that after only a year and a half my iPod caught fire in my pocket,” said Williams.
The iPod uses a lithium ion battery — the same type of battery under recall for setting laptops on fire.

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I suggest if you want to put iPod in your pocket, you may want to put it in a plastic case.