Ahhh - This old nugget surfaces again. I'm sure I'd heard this before, so I did some searching around, and found this old article posted in Feb 2005 (is it really a year ago - wow!)
http://www.eurogamer.net/article.php?article_id=58031
In the article, is also mentions the 'xPod' device
Quote: "XNA boss J Allard allegedly told fellow snowboarders in a bar at a Canadian resort that the next Xbox would come with an iPod style media player"
One other interesting point - is that the rest of the article seems to have come true!