The iPod is awesomely cool.
What amazing genius. Just the one wheel and just the one button to do everything? Brilliant.
And in comparison, the Zune could not suck more. Not if it tried.
So here's the thing - if your competitor comes up with something that cannot be beaten, because it is probably the coolest ever, then don't waste time. Accept that they won that battle, and congratulate them. And then...
Go build something else that is equally cool.