Ipod Touch doesn't charge while on, but charges while off?!

Hi,
I have an Ipod Touch 3rd Gen that I got shortly before xmas last year.
The problem is that since the weekend it doesn't charge. I'm using a charger and my wife's ipod charges fine with it, so that rules out the charger.
My problem is rather peculiar, the Ipod doesn't charge when it is on. But when the battery is low and it powers down, then it starts to charge. The moment it has enough charge the Ipod powers up again (when the black screen with the nearly empty red battery and the thunder sign disappears and you can now slide and use the ipod) at this time the ipod STOPS charging.
I have tried up to restarting and no luck. I'm unconfortable going to for SW upgrade if the device is on such a critical power level. Any suggestions?
It is running OS 3 (can't tell exactly which version, I did update the last time around xmas).

An update on this: Tried plugging to the PC and it behaves the same way, what's worse is that it wasn't recognised. The PC detects an USB device but it can't work out its an Ipod.
Tried with the wifes (same model and SW) and it works fine with the PC. My guess is a faulty USB interface.

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