Wired tells Sony to follow a leapfrogging strategy: don't knock off the iPod, make a video iPod instead.
This is bad strategic advice to Sony. I don't think it matters much which one they do - as long as they make one.
Here's why. First, the difference between the two is negligible - essentially, a screen. Other than that, they're just a couple of chips, a hard drive, and a case. Second, it follows that the marginal cost of producing one from the other is negligible. Third, the initial investment to Sony is peanuts. Fourth, Sony's networked hub strategy is centred around building a platform (with a few central components) - the rest of the stuff is low-risk experimentation, with a seriously nonlinear payoff - like a VAIO iPod.