I don't think it will compete with ipod/iphones directly. I think they are aiming more for the hardcore crowed rather than the casual market that apple dominates.
The price is amazing though. I am wondering if the 3G version requires a contract, or if it will be kindle like? It would be cool if it was like the kindle where it is free, or maybe free for basic things like finding other players and social stuff. But t play online you need an actual data plan?