[Apple iPod] Small hard drive, big iPod?

I have an older Mac with a 40 Gb hard drive. I keep a few of my favorite albums in my iTunes
folder to listen at my desk or load into my iPod Shuffle as needed. I mainly use my iPod for
audiobooks. I rip the discs, import to my iPod, listen on the go, and delete them when I'm
done to save hard disk space.

I'm considering buying a bigger iPod that would hold all, or a substantial portion, of my
music library. (I'd still use my shuffle for audiobooks.) If I get an iPod bigger than my
computer's hard drive, will I be able to use the added capacity, or will I be limited to what will
fit in my iTunes folder?

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