could be a short in the head phone jack. I think if the headphones are pulled out it pauses. So you might try different head phones. If that dont work try to restore it. If that dont work take it to a place that works on ipods and have them look at it.
Try either restoring it or play it without the headphones in. If it doesn't pause while the headphones are out, it could be a headphone issue. If not, restoring it will definitely fix it unless your button is stuck.