Wired has an interesting look at the early days of the iPod, and what's most fascinating is just how fully formed the idea of the iPod and iTunes was. The idea itself originates from a company called PortalPlayer, where hardware designer Tony Fadell had the idea to create a player that could eventually be paired with "a Napster music sale service to complement it."
That's it -- even that early, the iPod + iTunes idea that would eventually revolutionize Apple was that complete. Of course, that was before Apple even got invested in the project -- once they did, Steve Jobs put "100 percent" of his time into the project, and they ended with the iconic design and the feel and experience that pushed it beyond any other MP3 player at the time.
That's not to say that development was smooth sailing after that -- apparently there was a major battery issue that kept battery life at a super low three hours until Apple and PortalPlayer got it fixed up. Always fun to hear the backstory on the stuff that would eventually make this company what it is today.