iPod Software 1.3 provides the following updates:
iTunes 4 support, including playback of AAC encoded audio files
Audio playback and user interface improvements
Increased playback time on scroll-wheel iPods
Longer stand-by time for all iPods
iPod Software 1.3 is compatible with touch-wheel and scroll-wheel iPods without a dock connector.
More information here.
Apple says it is 1.3, but the link gets you 1.2.6 … not 1.3
You can get 1.3 by going directly to the Apple Support page.