Why on earth would *anyone* want to watch videos on a 2 inch color screen? It's not even widescreen! The prospect itself is rediculous.
I can understand using the iTMS to *distribute* video content, but the iPod is not a video-viewing device. I'm going to paraphrase a statement by another person (whose name I cannot recall at this time). They noted that music is a background media in our society. We can play music in the background of stores, casinos, videos, and our own lives... all the while, we can continue being productive doing other things. Video or movies in specific are meant to be an *immersive* experience. You sit down, watch a movie, and even though people can multi-task while watching movies on TV, it's not ideal or intended. Why would you need to walk around staring at your tiny screen?
Overall, a video iPod is an absurd concept. Of course I'll eat my words if it does come to fruition, but i doubt that will be happening anytime soon.