Haha, the nylon string stuff is actually pretty funny. The guitar is an Esteban! I don't own a nylon string guitar, and the only one I could find to borrow was from a friend of mine whose father owns an Esteban. He let me borrow it and it actually plays OK. The intonation isn't the best, but it works. Anyway, the guitar is an acoustic electric nylon string, so I blended the piezo output of the guitar with a Samson C03 condenser I have. The C03 is the same mic I use for vocals. I like it pretty well.
I placed it towards the back of the soundhole, about 8 inches away and a little lower than the soundhole, pointing up towards the soundhole at about 30 degree angle. Double tracked the rhythm arpeggios panned left and right about 60%.
The lead line is the same miking and DI from the guit, single tracked up the middle.
I'm not a real strong fingerpicker, and I have no nails, so I grouped the rhythms and added some compression and verb to smooth it out. I comped the lead track to to bring it out a bit more and fiddled a bit with the comp settings to simulate a better "nail attack".