More interesting, what codecs will it support?
Unless it supports high compression/high quality codecs such as DivX its a pretty useless feature. Sure, I bet it will support Apple MPEG4, maybe MPEG1/2, Pixlet, DV and some of the other standard codecs that Apple uses in the MOV container. However besides MPEG4 non are high quality/high compression and with all due respect, nobody besides Apple uses their MPEG4 format and the quality sucks compared to other MPEG4 derivatives such as DivX, XviD and 3ivX.
Another issue is decoding power, the ARM CPU that the iPod uses doesn't have enough punch to natively decode video so they will have to use external decoder chips. Which will those be?
Also will that player accept AVIs with MP3 audio (which QuickTime doesn't) and Ogg Vorbis audio which has become increasingly popular for Audio in Video files.
As far as I am concerned I don't see this feature bringing any additional sales unless above is true, because:
There is portable/non-portable players out that decode DivX AVIs in any format (DivX3,4,5, MPEG4-ISO, XviD, 3ivX), the non portable ones are combo DVD/DivX Players. Also I know from two manufacturers that both their portable and non-portable players will soon support advanced containers such as OGM and MKV.
So for playback alone, especially since it doesn't have an optical drive and it requires an external screen I fail to see the "Must have factor" given the limitations it most likely will have.
It might become a different issue if I could hook my iSight to the iPod and take pictures and record movies and voice stuff with preview on a color LCD in the iPod. For playback alone, Apple would have to do a lot of things they have not done in the past in order to make people want to buy the iPod.
Regards,
Ahmed