Don't know if this will help anyone or not but...
I run an iPod Touch (haven't used the Nano that comes with my '11 SESG) and had the same freeze-up problems. I found that, for me, the problem goes away when I put my Touch into the music mode (a.k.a. Now Playing screen showing the current song and play/pause icons) within the playlist I want to play, plug it into the iPod harness and go ride. If you plug the iPod into the harness with the radio on and iPod mode selected in the HK head unit, the iPod screen should change to indicate it is in accessory mode and cannot be controlled with iPod controls. Starts back up every time on the last song played in a particular playlist after shutting the bike down for a few mins (like at the gas pump). Something curious though...my songs are shuffled within the playlists even though I don't have "Shuffle" selected on the HK radio face.
If I plug in the Touch in any other mode (like the startup home screen with app icons, or any other mode), it freezes as many have described above.
Hope this helps...
Dave