I had no idea how useful a tiny, sleek media player can be until I started to try my iPod nano. I can listen to my favorite Chinese and English TV shows (they come as mp3 files) while running on a treadmill or hiking. I can also play games on it while waiting in the mall. I may be able to read books with it as well.
Of course, there are a lot more things you can do with such a device (Current iPod and Zune can do some of them):
If you add "make phone calls" into the list, this is like the feature list of a future smart phone, right? Apparently, the market is not yet ready for this kind of all-in-one gadgets because of the form factor, power consumption, etc. But imagine if your iPod or Zune is your (i)Phone, at the same screen size, roughly the same weight, always-on connectivity of WiFi or cellular. Anyone who can make this device affordable to most consumers will win.
There are a bunch of music players with built-in WiFi. Music Gremlin has been covered by Business 2.0 last month. Here is a summary of these products.
The challenge here is to offer WiFi access to *any* wireless LANs yet providing a simple user interface. Home wifi is fine with pre-configured user credentials; commercial hotspots are mostly doing browser hijacking, so the authentication must go through a login web page, which is not possible with music players like these.
Also, it would be nice to have wireless ad hoc capability. Users can easily setup and/or associate with an ad hoc network, sharing files, etc.