Here is what I think Apple should do:
Take the iPod, put a reasonable fast XScale CPU in there (hello Intel…), take a large display from eInk , put a PDF viewer on the thing and built a iTunes like document management app. Use the iTunes shop logic to sell books and don´t overdo it with the DRM. Put WLAN in there and a RSS reader. Add Podcasting support with autosync everytime the devices sees a network. And sell it for $300.