I think some form of video ipod. Makes sense. DRM'ed all to hell, but there they will sit. Possibly with touch-screens and inkwell. Possibly with 802.11. And possibly with ARM processors.
Think about it. Steve said something about you sit in front of the computer with your mind on, in front of tv with the mind OFF. So you take your iPod with you to "tune out" right? Video is the same. Video out, sync with paid content (or iMovie, vCasts via iTMS, etc.-- Mark Cuban, you listening?).
one man's journey into creating gibblybits