Use an iPod shuffle I got for Christmas a couple of years ago to listen to music when running/cycling (on a machine, don't go onto the roads with headphones on unless you have a death wish ). My iPhone feels a bit bulky, and plus, if it gets broken, £40 is better than £500.
I do not use an iPod anymore, my last iPod that I actually purchased was an iPod video 5th generation, then when I got my first iPhone in 2007, I just used it as my iPod ever since. There isn't really a need to do it any other way. A bonus is that the car charges the iPhone too, while it is playing music.
When running, or waiting for a bus, or something, the iPhone does fine for those occasions as well.
I sold my 32GB iPod Touch 2 weeks after I got my iPhone. It was just stupid carrying both around. My 30GB iPod classic I was planning to sell but I am picking up new Impreza soon and it turns out the car has usb port so i will keep it plugged in all the time.
Yes and no. I have an iPod classic (160 GB) that's almost full with my entire collection which is nice to have on long rides/trips and in the car. My iPhone has whatever is new or what I've been listening to the most recently.
Yes. I had a 60g iPod classic in my glovebox integrated into my car stereo but I installed a bluetooth adapter because I liked the idea of just using my iphone in my car rather then having to bring the ipod in the house everytime I wanted to add new music.