Gotta hand it to high capacity MP3 players for the time being, until the cloud and wifi become much more ubiquitous there will be no substitute for having your whole library in your pocket. But honestly, I don't need that much music on me all the time. I rotate a few gigs on my phone and stream the rest of my library through Play when I want it. And that 160GB iPod is not a tank, bounce it around in your pocket for a few months and it will die. I've had two HDD iPods and they both died after about two years even though they were rarely dropped, but having a physical job and them being in a pocket shook them consistently enough that the drives eventually petered out.
I've had mine for 5+ and it's still hitting them outta the park. I don't know how. But you're right. They will most definitely be obsolescent once wifi becomes a commodity. If I had a say in the matter though, it would be all music on me because you never know what kinda party it's gonna be. Might as well have that random footwork in hand. Just in case you wanna stick your dick in the mashed potatoes.