The problem with ipod is it doesn't convert readily (or didn't) to other formats. For example I have a PSP, which plays games and music.
iPod may have thee finest sound reproduction available, but I'm guessing well over 90% of the listening audience can't tell the difference. If they could, they likely can't now due to hearing damage from playing too loud for too long.
If someone is a discerning audiophile, good for them on a $200+ piece of equipment. For
my needs, a smaller cheaper device that might have less storage and audio quality works for me.
There is also the problem of Apple (like any industry leader) of deliberately selling a suboptimal package for a length of time, then releasing a slightly better product for a few dollars more yet still not max quality (hey our scientists are working night and day to get out something better next year, meanwhile buy this now), ad infinitum. I don't care to chase that dragon.