But, look at Sony's way of doing things. They invent a format, ATRAC, and players to play it on. Later on they invent transcoding software and other things to ease transition, but in the end, the Sony stuff runs off ATRAC, but can accept any format right off the bat.
Consider... maybe this is where Pixlet and 3GPP come into play?
You'd have some new program for loading video or pictures on the device, which would be hard at work automatically transcoding anything with a Quicktime plugin to Pixlet/3GPP, and then cramming it on the iPod, just like iTunes does for audio. G5s are powerful enough, I'm sure, to handle this process, and if a neat hardware trick allows the real-time playback of specially-formatted movies on iPod, wouldn't THAT be a killer feature?