I believe that for the service fee they give you a new iPod.
From
Apple's website
What is the iPod Battery Replacement Program?
If your iPod requires service only because the battery’s ability to hold an electrical charge has diminished, Apple will replace your iPod for a service fee of $59, plus $6.95 shipping. Be sure to follow all of the battery troubleshooting steps before submitting your iPod for battery replacement.
I am going to do this relatively soon since the battery life on my 3G iPod is pretty toast.