OK. I found the problem. The filter between the housing and the loud speaker had some sticky hard stuff that was blocking the sound. I had originally blown out the filter with air and considered it clean, but on second attempt I actually took out the filter and inspected; that stuff would not come out with just air...needs some sort of solvent or soaking; I replaced filter (original might be cleanable but I didn't want to put in the effort and I had another from a defunct water damaged unit) and working flawlessly now.
My unit worked as it should when connected to computer but was screen stuck on "ok to disconnect" or "do not disconnect" or diagnostic mode. I happened to have another iPod Nano 6th I was working on so I took out the battery/logic board and moved it to the unit with the good flex cable; and it worked flawlessly. Likely, the switches went bad with some water exposure; or there was moisture stuck in there; I replaced cable since I broke the cable trying to expose it. So if reset and restore doesn't work, test the on/off volume, headphone cable. I wrestled with restore/reset for too many hours and searched internet for hours for solution with no luck, then solved it.