Apple has certainly improved, but I don't see iTunes as much more than a well written library program with an MP3 player tacked on.
If I had the money I could easily build and design a better, sleeker MP3 player than Apple. It's just the fact that all the companies who are coming to compete in the MP3 player market don't have a history in it. I used to own a Sony MP3 player, and fuck did it butcher the iPod Shuffle in usability and play time, I mean it had 50 hours of playback! It was, and still is, the only MP3 player on the market that can actually play all the music on it before its battery dies. If I ever needed a small MP3 player again I'd either dig up the old Sony one or buy the newer model.
The iPod Classic sits in the multimedia market, not in the solely MP3 market. This is where the problem comes in. iPod's competition doesn't know how to make something that looks worthy of the money. Zune was a piece of plastic crap, plastic was flashy when the original Walkman came out, but if anyone from Microsoft cared to look out of their window on a highway they might see that plastic is trash.
I have a cheap motorola phone, no bells or whistles. My girlfriend has a more expensive phone with a camera and mp3 player and what not. It's the same phone, it even takes the identical battery, yet hers has a metal back plate and everything else and weighs 3 times as much. This, in peoples minds, equals value.
I could easily use the iPod's example and build a better MP3 player. It's quite simple; use a slightly wider LCD screen and display in widescreen, which should all blend together in a deep black so that you can't see the difference between the LCD and plain black when it's off (the mp3 player I had from Sony did this and people liked and commented on how cool it looked, because it was cool). The front plate should be a single piece of unbroken electrically conductive glass so that you can operate the controls (similar to how the iPod works) but without it ever, ever being able to get dirt stuck between the cracks. The back plate should obviously be scratch resistant aluminum.
All of the above design is off the shelf or, in the case of the LCD, easily designable. However, the cost of such an MP3 player would be too high that you can't guarantee people will buy it, which is exactly why Microsoft or Sony hasn't made something like this. Apple has a keen following, it's risks aren't going to bankrupt it or a division, so it's free to experiment; other companies can't experiment in the market, that's reserved for the lab only because if they fuck up slightly then no one will pay the money.