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It was only a few years ago that I had to save up in order to buy the Archos Jukebox Recorder, which was just a laptop disk in a box with an mp3 decoder and I think it cost me more than this thing would. It's crazy how fast things move on.
I wouldn't buy this myself, because I don't really see the point of watching videos on the go, but it's always good to see a useful Linux device. I wonder how much it would cost if they'd had to fork out for some proprietary software instead?
The Archos UI and libs are proprietary, so they don't save that much. Most such media devices don't even run full OSes, but even if you had to license a full embedded OS, that would be a few cents up to 2-3 dollars per unit.
I would have thought that as this device is Linux based, then it would have been easy to add ogg vorbis support for audio, and whilst they're at it, how about ogg theora video ?