I wouldn't recommend using the iPod Classic in disk mode to act as a repository for your library. Leaving it plugged in for long durations other than to charge is going to be very hard on the battery and will shorten its life span. Additionally, the 1.8" drives used in the Classic are not designed for continual data access like a regular hard drive - they want to spin up, read a track or two, and spin down.
That said, I'm assuming you are a laptop user, because most desktop users don't have issues with space for music these days. I'd seriously consider just upgrading your laptop's hard drive. For $119, you can get a 7200rpm 500 gig hard drive...look here:
http://www.memoryexpress.com/Product...23360(ME).aspx