Do Apple offer a recycling program for iPods? I've never looked into it. I think I probably have my old iPod shoved in the back of a drawer somewhere that I could recylce.
Personally I don't mind replacing my iPod every few years if I have to, since you get the latest and greatest features and form-factor each time, and it's cheaper each time too*.
Shuffles are getting ridiculously cheap now too. If you did want another Shuffle, I reckon you'd save a fair bit of money by replacing them each time the battery ran out compared with buying new AA/AAA batteries constantly (or even buying rechargables). And they come in 2GB now
As for the audiophile stuff, well I'm no expert but as far as I'm aware there's nothing available that's any better than the iPod in this regard. It's not that bad if you have the right pair of headphones though, surely?
*I only have to pay wholesale price too so that helps