Well, I have the Nano music in iTunes. I see the devise there also. I can see both the phone and Nano. I cant seem to drag the songs from the Nano to the iPhone. I get that circle with a line threw it?
Is the Nano's music already on your computer? If so, just use iTunes to make a playlist and sync it with the iPhone. If you don't already have the music on the computer you'll need to copy the music off the Nano. You can use a program such as Senuti (for the mac) to "rip" the music off the Nano back to the computer.