i think its a decent idea. it works the way people actually use flash based players with limited capacity. you use such players for sports and exersize or whatever. making playlists every time u go jogging? please, thats make work..u'll just not bother after a while, thats how it is, if something makes work for you, u will probably just not bother. if you get random parts of your music collection everytime u sync, its just like listening to a normal hd based player on shuffle,...for a shorter period. and well many people listen on random anyways.
and its small... if u look at the total volume, its basically one of the smallest. for the usage it will get, thats perfect. when you are lifting weights u shouldn't need to look at an lcd anyways
apple seems to think about how real people would actually use something regularly. for instance...i don't need to voice record some sh*t while i'm jogging...... just play music with little hassle.