Q: Does the iPod classic fifth generation support subtitles when movies are played on its built-in screen or on TV?
A: For the sake of clarity, the term “iPod classic” generally refers only to the 2007 model iPod, which is by definition the sixth generation iPod model.
Assuming that you are referring to the fifth-generation iPod released in 2005/2006, rather than the current iPod classic, this model does not support encoded subtitles (sometimes referred to as “soft subtitles”) in the way that the newer 2007 iPod models do. This means that any movies that have soft captions or subtitles will not display these captions/subtitles on a fifth-generation iPod. The movie itself will still play fine, but any soft subtitles will not be shown.
At this time, however, the availability of encoding tools that will add soft subtitle support to videos that you encode or convert yourself is still very limited, so you are likely only going to find soft subtitles on content purchased from the iTunes Store at this point.
Most of the iPod conversion tools available right now that do offer subtitle support instead actually use “hard” subtitles. These are subtitles that are embedded in the picture, rather than being stored as a separate subtitle track. Naturally any display device will present hard subtitles during playback, since they are part of the video image itself. However, for the same reason you will not be able to turn these subtitles off (again, since they are part of the image, rather than an overlaid subtitle track generated by the device).
Although it is certainly possible that Apple could add subtitle support to the fifth-generation iPod with a firmware update, this seems unlikely at this time, since even the most recent v1.3 firmware update has not added this capability.