At $249 I don't see it gaining much traction against the iPod. It may have a few pros over the iPod (wifi sharing, FM radio, greater choice of colors) but it has as many cons (shorter battery life, bulkier design, less aesthetically pleasing).
To beat such an entrenched and established player, you need to to offer something revolutionary. This isn't it and Apple will always win when it comes to marketing.
Hopefully the second generation of devices will offer something more. Apple need some real competition.