Making a great product like the iPod means more than taking a 20GB hard drive and slapping play and fast forward buttons on it. It takes a true sense of design, with a passion for ease of use. It takes a decision to go for quality over economy. It requires tight integration of the hardware and software. And, finally, it takes a sense of style.
Apple is currently the only company who can provide all of that right now. You have to spend money to make something good, and Apple isn't afraid to spend on R&D, so instead of just making products, they make good products.