Except for the fact that this would be an anti-trust violation, and therefore illegal...
On the file format issue. I'm all for AAC. The trouble is that most cell phones, music players, besides the ipod do not support it - from what I've seen. So Amazon is not motivated to carry it if MP3 remains the 'universally playable' standard.
If Apple had licensed Fairplay (DRM'd AAC) to other sellers, then device makers would have had much more motivation to support AAC, and it might be the universal standard today. Instead Apple opted to keep their ipod-itunes lock-in, rather than promote AAC as a format.
I'm not saying this was bad or wrong, but it was a choice. Granted that device makers could have still supported AAC as an open format that's superior to MP3, but without any real financial reason to, and since Apple was not playing fairthey didn't...
Lets just hope Amazon is successful enough to begin to offer different file formats, but I wouldn't hold my breath.
This is not true, in my experience. My phone, my wife's phone, my parents phones, my in-laws' phones, they all can play AAC. More media players than not, in my experience, these days support AAC. It's only smart for them to do so.
Now, it's true that the protected AAC format that Apple uses is only supported by iPods (and the iPhone), but that's only natural. And, as far as you "not saying this was bad or wrong", it really seems that you're talking out of both sides of you mouth, as you accuse Apple of "not playing fair". Yes, I get the joke, but it's clearly an indication that you think that their choice to keep the Fair Play DRM proprietary was a bad and wrong choice.
If you ask me, it wasn't. Apple made a business decision to keep the format close to the vest, so to speak. The reasons are pretty clear. If they licensed it to other online stores, then it could have entered the wild pretty quickly and other device manufacturers would reverse engineer it and come up with iPod competitors that would play Fair Play DRMed songs. Whether or not this would have happened, it was a business decision to attempt to block this for the good of the iPod. And the iPod is generally recognized as the reason that Apple is doing as well as it is at this point. So, to argue against their decision is tantamount to arguing for a poorer, weaker Apple that isn't such an industry leader. This may be a little bit of an exaggeration, but I think that there is some truth to it, and it's not a simple issue, no matter how you try to cut it.
