I currently use my 120GB Zune hooked up through the A/V cables which works awesome, but before I had that I was using a hard drive media player...pretty slick little units, you take a hard drive (for me, I upgraded my PS3 hard drive to 500GB so I used my old 80GB drive) and you put it in the enclosure which looks just like most external hard drive enclosures except that it has A/V and Component outputs on the back and a small display and a few buttons on the front, and it comes with a remote. I'm sure it depends on the model that you buy, (mine was only like $40 off eBay) but mine had a really nice on-screen display and the best part about it was it was available IMMEDIATELY after the unit started up! No waiting 5 - 10 minutes. I guess the only downfall is that you can't navigate on screen and have to use the remote, but I rather liked that about it. I still have it hooked up in my car but I only have DivX video files on it now and I pretty much just use the Zune which has all my music.
You can also get them to play hard drives up to 1TB in 3.5 drives and I've seen up to 500GB in 2.5 SATA drives. And they are relativly cheap...Just something to think about if you have an extra hard drive and don't wanna splurge on an iPod.