My own feeling on this is that the more things it can do the better . Clearly playing audio should be top of the list but I'm not about to complain about extra features. I bought my Iriver H340 (40gb) mainly for the extra functionality. This plays audio very well with (IMHO) good audio quality, its got reasonable codec support and very long battery life (15h + in my experience) but its also got fairly extensive (and good quality) recording functionality which was the reason I bought it. It also plays video (better than my PDA!) has an FM radio (quite useful), txt file support (which could be a lot better tbh), picture viewing (not a lot of use) and USB host functionality (very useful to support cameras etc when in the field).
Now from my point of view I would prefer not to be running around looking like a walking computer store with pdas, audio players, portable media centres, stopwatches, phones, cameras, gps devices etc dropping out of my pockets, so the more functions a device has the better!