Good, that means the prices will drop :)
I reckon they cannibalised that market themselves with the iPhone, a bit like the GPS hardware market took a self inflicted hit by GPS apps on smartphones.
That said, I have a nano that has suffered, so I may have a look around at replacing it, it's lighter than having a whole phone strapped to my arm when I'm running. I'm also in the market for a iPod Touch because I can run the Røde mic recording app on that without having to switch the thing to Do Not Disturb so a call doesn't interrupt a recording :).