'Cause the nano is adonized aluminum and virtually indestructible ( It's made of the same material as the mini and i've dropped that thing running at least 50 times in 2 years and it just keeps on ticking ) . Smaller form factor ( albeit not a huge difference ) , color selection, etc.
The benefit of the nano is it has a solid-state storage solution. The larger iPods have a moving hard drive. When running or moving around a lot with the spinning hard drives, eventually it will lead to failure. Skipping during songs and malfunctioning of the drive also sometimes occur with a spinning drive.
With a solid state storage solution ( alliteration at its finest ) , you have nothing to worry about with that.