The iPod still has the best design, I have to admit that. They were smart enough to know that it's part fashion and not all technology. The players offered by Dell, for instance, look like something a NASA engineer would own in 1967.
The first company that comes out with a cheap, cheap player wrapped in a plastic case that looks hip, will eat Apple's lunch.
They are already out there:
http://www.macobserver.com/article/2002/07/22.10.shtml
http://p2pnet.net/story/4203
None of them work with iTunes (which is a huge part of the iPods success) and none of them innovate or push, they wait for apple to make a move and then follow.. This will hurt apple if they stop moving but they have not yet done that.