I have used it for several years cleaning out boards and other electrical parts with no issues, i have not seen any water residue left behind. You can purchase pure alcohol at some grocery stores but it runs about 20 dollars for a 750ml bottle typically its about 94-99% Alcohol.
It would depend on whether or not the unit was powered up at the time water was applied to the iPod. If powered up and left that way (turned on--battery installed) for any length of time it probably won't help. On the other hand it doesn't hurt to try and you might get lucky.