This may not be exactly what you are looking for, but I am sure you can adopt it to your use in working out. This has to be hands down the best deal out there for a non-hard drive system. Buy a
Lexar MPC-231 JumpGear MP3 Digital Music Player at Amazon that is $35.84 and then buy up to 1GB jumpdrive Sport Jumpdrive from Lexar that for a 1GB is only $79.99 at Amazon. They have a 512mb for $54.99, and so forth... I have also seen really good deals for the 1GB drive latley (down to around $40 at dell), but those deals have passed. In any case, hard to beat.
P.S. I personally use a regular size IPod with an armband and don't really have any problems with it. Though sometimes it does pause between songs and I have to stop the arm from bouncing too much so it can load a new song.