I agree that competition is great for consumers, and can only lead to better products and lower prices. However, I believe that the way Real has gone about adding iPod compatibility is wrong, if not illegal.
Personally, I think Apple should just watch quietly and let Real continue its promotion of iPod compatibility. In the end, I don't think it will have a significant impact on iTMS users or iPod sales. I had the opportunity to use the Real Music Store earlier today (on a PC), and I can't say it was a terrible experience. If not for the uncertainty of whether the songs purchased from Real will continue to work with the iPod in the near future, I don't see a problem with getting songs for half the price of the iTMS. What kind of knucklehead wouldn't prefer to buy songs for half the price? But, when the sale IS over, and Real and the iTMS are essentially competing on equal footing, I think that everyone who ran to Real for $0.49 songs would come back to the iTMS simply because pound for pound (or byte for byte) it is the superior music store.
I'm a social psychologist, and I've conducted this type of research on consumer behavior. It's like when you have a favorite brand of potato chips, but one week, the generic brand is on sale for only 1/2 the cost of the name brand. You might snatch up a bag or two of the cheaper brand simply because it is on sale. But once the sale is over, it's right back to the name brand because the overall quality is just plain better than the generic brand. Even if the non-sale cost of the generic brand is lower than the name brand, you stick with the name brand because it's worth the premium you pay.
For those of you who are hoping that Apple will nip Real's encroachment into iPod compatibility in the bud...at the time the newest generation iPod was announced, I recall some Apple executive claiming that there were features included on the iPod that weren't disclosed. I suspect that whenever these special features are announced, they will require a software update that will also include some type of block against Real's music files. My bet is that the desire to have these new features will outweigh any desire to maintain compatibility with Real's music store.