Losa, all you have to is to replace the switch when it is broken. There is really not a good way to fix it The part is inexpensive and easy to replace iPod Video 30 GB Headphone Jack & Hold Switch of course make sure that the ribbon cable is properly attached to the logic board. Good Luck.
Includes headphone jack & hold switch — Currently out of stock.
In my case the problem on an 80G video turned out to be that the white plastic frame that keeps the hold switch external slider aligned to the actual internal switch was broken, so that the external slider lost alignment and contact with the internal switch and wasn't doing anything. There is no replacement part of the plastic frame.