I did a tiny bit of research on the hardware this afternoon, and just as I suspected – this is the least sticky issue. Here is a link to the entire category of mp3/video players on www.alibaba.com: http://www.alibaba.com/trade/search?IndexArea=offer_en&SearchText=mp3. This is the first one that I thought was the most feature laden and extensible – I like the idea of a built in USB port: http://bitland.en.alibaba.com/product/50139966/51203583/MP3_Players/Flash_MP3_Player.html
I think that a case and package (green, no plastic) design contest in partnership with www.core77.com and custom skins from the guys at www.ifrogz.com or www.macskinz.com (who also do laser etching) would be yet another way to get the community involved.
From a marketing perspective, once a website is up, I would make an affiliate marketing widget for a 10% discount to pre-pay for a device and get every podcaster out there to put it on their sidebar. Not to confuse the RSS issue, but direct subscribe badge that looked something like this:     would add a lot of credibility immediately. I’d also put up a store in SecondLife and sell signed and numbered digital copies of the player so copybot wouldn’t be an issue. I’d even consider in-game kiosks to manage feeds – which would really be nothing more than a hosted OPML list.

I really like Michael Gartenberg’s suggestion that you don’t sell cheap add-on accessories like headphones. I’d sell add-on packs or a deluxe version if people really wanted them, but they’d have to be worth putting into another package and getting another SKU. One more way to save money is that I wouldn’t print a manual (it should be intuitively easy to operate) or bundle a driver CD that becomes outdated the minute it’s shipped. Instead I would create a wiki or user forum on the site and print that on the box.