The ipod not only has ability to create numerous playlists but they can be smart created using a large number of variables. You can also create on the go play lists, i.e. by clicking the enter buttons when you are listening to tracks, you can shuffle by your entire library or by your specific playlist so there are numerous options.
Indeed, the iPod is certainly very good for playlists.
The HD5 has bookmarks that you can add songs into (there are five, each can have 100 tracks in it) but they are a pain in the arse to use. You have to have the song playing in order to add it to the bookmark, which is, as far as I'm concerned useless. Its a shame, because its the only feature that I think the HD5 is missing.
I use Winamp to create M3U playlists for all my music, I then import these to SonicStage and move them to the HD5 that way. This is a great way to organise music, and it gives you a lot of choice as to how you organise your music.
SonicStage will also allow you to create playlists, and that works fine too.