I'm in the same boat. I still love my latest gen Nano and dread the day it's battery one day goes to nothing.
So a major pillar of Apple has finally crumbled.
Really? You'd think Apple had actually discontinued the iPod, instead of recently released updates.
Reality: Apple are now treating them as accessories and putting them on the shelf next to the other accessories so they don't take up valuable space in the "showroom" area and you don't have to bug a sales assistant to fetch one from the storeroom. That's because they are, now, accessories: the customers for iPods are already sold on other Apple products or services, they just want to add an iPod for jogging, the kids (who will hate you for not getting them a phone) etc.
They're a useful part of the Apple ecosystem that will only be discontinued if they become really uneconomic, but the days of them being a flagship product ended years ago.
Dedicated personal music players are a mature product. 16GB will hold enough music to play 24 hours/day for a week. Most people who want them already have them. Heck, even the technology that largely usurped them, the phone, is reaching market saturation. There isn't going to be any new revolution, no hitherto unexplored new market that would justify giving them prime showroom real estate that could be used to sell Watches or MacBooks. If you want an iPod you'll probably pick one up with the groceries or from your favourite online retailer. If you do schlep to an Apple Store to buy one then you'll probably go to browse the other shiny stuff, not deliberate over the iPod. Just like any other accessory.
As for Apple innovation: its never been about wresting new ideas from the raw firmament: every decade or so, Jobs would spot some idea bubbling under in the marketplace, get his people to re-design it into an attractive and usable product and then market the crap out of it.
Give post-Jobs Apple a chance. The Watch might turn out to be massive, although I'd wait for version 2 (and remember that even the iPod wasn't an overnight success). It sounds like they'll do something big with TV as soon as they've got the content sorted out (again, content was an important factor for the iPod's rise) and its clear that they're cooking something up with cars. All of these are just the sort of bubbling-under products that would benefit from the Jobs treatment.
As for the PC and Phone industry: its in stagnation. Nobody is making leaps and bounds any more, the products are mature and the need to upgrade every year or two is gone. I don't see any big new thing waiting for Apple to perfect and kick into life. As it is, they're doing well keeping their end up in a flagging market: they've pushed small things like higher res displays (when the PC industry had stuck at 1080p) and haptics (nothing like the force touch trackpad yet) and the MacBook/Air/Pro still make PC laptops look like buckets of spare parts.