While I'm not a fan of either, I'd go with an Ipod. Unless you're big on sharing tunes with your friends then there isn't a reason to buy a Zune and even then, (since you like to purchase your music) you can only "lend" a song purchased from the Zune library to a friend who can play it no more than 3 times in a 3 day period.....
There's no reason to deal with Microsoft's bullshit and take the risk involved with buying a first-gen product when the Ipod has been out for so long and has so much support behind it.
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My video is all DVD at this point and I know there is conversion software for both products. (does any one know if there is any conversion software for Podcasts for Zune?)
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When it comes to comfortably watching full-length movies, the Zune and Ipod will only lead to disappointment. You'd be much better off going with one of the
Archos media players. While they're a bit more fragile, they'll easily handle of your media needs an afford you the ability to comfortably watch your movies for long sessions....built-in speakers, wifi.....
I'd go with a $79 Ipod Shuffle and put the rest of the cash towards a proper portable media player like any in the Archos line of products.