I say it again, I would love something just like this--same form and size an all. Just change the port to USB-C, the HD to a huge SSD, add Bluetooth for Airpods, and wifi for syncing with iTunes.
I'd give up my four classic iPods (two that function and two that are dead) for it in a heartbeat.
If there were enough of you out there, you might have your wish. I doubt there are enough people to justify anything other than a limited edition device with a made-of-solid-gold price.
The thing is, other than overall form factor (modern iPod in the original's clothing) and a USB-C port (and we'll see what the next year or so brings in that regard), you have all these things in iPhone, iPad, and iPod touch (and a bit less than this in Apple Watch). Yes, the UI is very different, size is somewhat different (iPod touch), but today's devices are far more versatile.
One of my prime reasons for embracing iPhone is that it's a single object that replaces many. I spent many years carrying some combination of cell phone, calculator, pocket pager, PDA, camera, Walkman CD, flashlight (on occasion)... So for me, any suggestion of more clutter in my pocket just doesn't cut it. I think the vast majority of folks would feel the same way. If I'm already carrying an iPhone or wearing an Apple Watch, why would I add an iPod of any type to the load?
Since I'm an Apple Music subscriber, the non-Apple music in my Mac's library is already matched/synced automatically to my other devices. I can either download or stream as the circumstances require, and downloads that have not been listened-to for a while are automatically removed from storage to make room for other data. If I got pleasure from deciding what I would next sync to my iPhone I could still do that, but I have other priorities in life.
Sure, there's a community of passionate users who formed all their library/curation/syncing habits around the classic iPod and have no interest in change. However, from a hardware marketing standpoint it is not a growth market. Anyone below that certain age is not going to see the point.
We've gone from "1000 songs in your pocket" to "80 million songs in Apple Music." I can rent that entire library for less than the cost of 10 new-song purchases monthly from iTunes (a single album). Apple's AI has learned enough about my musical tastes that when I tell Siri to simply "play" I get a remarkably satisfying mix of both popular and obscure selections from my favorite artists and others from those genres I hadn't thought about (or heard) in decades. I don't need the kind of control or selectivity that comes from creating my own playlists, although I'm certainly free to do so. Been there, done that 50 years ago when I started working in FM radio.
We're each different so I can't say anyone else feels quite as I do, but based on my personal experience and interactions , the group that would appreciate a return to the historic iPod is nowhere near large enough to pique Apple's mass-market sensibilities.