I have been an iPod Video user for the last about 4 years. I got it on release day, and loved it till it fell out of my pocket into a puddle... *insert sad face here*
To start off I'd like to say that I was scared of the up-down scroll wheel that was on the player. I had no need though since in the end it works great with the interface. Maybe even a little better than the iPod scroll wheel.
Good music player, no equalizer though and it doesn't support as many file types as the iPod. Audio quality is lesser to the iPod because of the lack of equalizer. Treble is a bit too high for someone like me who enjoys Drum and Bass. The quality of the headphones the unit came with diverted some of these worries though because they are excellent.
The thing I really love about this unit is its emphasis on the visual as well as the oral. You can customize the background which is great. In the song menu the album art is next to each song. When you play a song you get a nice big album art picture as the background. Overall excellent esthetically.
The video on the unit is quite large, as it is displayed in a panoramic way on the large screen. Quality does become an issue though with the screen as the aspect ratio is the same to the iPod video, or classic now. I personally prefer the Zune's video even the quality isn't quite as good because it's bigger which was an issue I always had with my iPod.
The WiFi on the unit is a gimmick. But so is the album art cover scrolling feature that I have on my iPhone since I have never actually used it. It's one of those things that's definitely there for show. So I'm really not gonna knock anything off for that.
Software that came with the unit was a little clunky but eventually I got it working with the help of iTunes. Refer to video for more on this.
I definitely recommend buying this unit. For most there won't be much of a real loss of buying this over an iPod or Vice Versa. For me though I definitely prefer this probably mostly just because of the customizable backgrounds and the attention to visual detail Microsoft put into the product.