Here's a crazy thought. The iPod is updated with:
1. An iBook style AV port that doubles as a headphone jack, to be used with adaptor cables
2. The hardware is pumped up to handle full-screen playback of MPEG-4 videos (perhaps fine-tuned for certain video and audio codecs).
3. The software is expanded to support autosynchronization and browsing and playback of videos (particularly but not limited to those created in iMovie), picture sets and slideshows made in iPhoto, and of course music and playlists from iTunes. Optionally a couple of video games meant for playback on the iPod and TV are thrown in for good measure (tetris), the os x addressbook auto-synchronizes data with the iPod as well, and text/pdf files in a particular folder are also mirrored.
Voila - your portable music library is now your portable media library. The only real question is the additional hardware to handle video decompression, and whether it can be made small and cheap enough for an iPod.
P.S. The limitations of the MP3 format have thus far prevented it, but with music in MPEG-4 format you could have a portable Kareoke studio. (Songs broken into music, backup singers, and lead singer audio tracks, with a timed text kareoke track). The Japanese would love it. Add a microphone or audio-in port for playthrough (throwing in audio recording while you're at it) and you'd be set. Heck, with one of those little FM broadcasters that plug in to the firewire port any boombox is an instant studio.