Begining of a long post:
If you consider yourself golden eared, the Sony could have higher audio quality from the headphone jack, given similar bitrate material. However as far as versatility is concerned, the iPod is far better. For your average Joe, I expect the iPod to be the best audio player they've ever owned. Having owned far too many audio devices and headphones not to be somewhat critical, the iPod was unfortunately not for me.
So, if compressed sound quality and incredible portability is important and lack of funds is not an issue (i.e. you're prepared to buy lots of MSDuo cards) then I might point you towards the NetWalkman instead of the iPod. Of course this doesn't give you the option of having a huge swathe of your (or maybe in some cases your whole) music collection in one unit.
I bought and very regretfully returned the iPod after trying to live with it for 3 months, it wasn't quite developed enough for me and had a few too many little firmware and physical design problems here and there which I think I shouldn't have been expected to put up with after the money I'd spent.
I'm not usually a difficult customer and the fact that after presenting my report/reasons for return at the shop I took it back to (and Apple, as they called Apple for technical confirmation) caved in without so much as a whimper of disagreement, and gave me a refund after 3 months with no quibbles should go some way towards confirming my issues. These include problems with inconsistent operation and sound quality.
I love it's concept and would think that many people wouldn't necessarily have the issues I have with it, but the execution was incomplete in my opinion and unacceptable to me in the end for a premium audio player. If pressed I would say the current effort was OK given my problems with the iPod. But OK is not what I'm looking for out of the most expensive audio player on the market. This is a UK unit by the way.
I'm in limbo land at the moment, neither willing to go back to Minidisc (tried going back... waste of time, literally) nor being sufficiently enamoured to buy any of the non-iPod HDD players available now. I'm still in the hunt for a main player (the Karma maybe? But no remote...) while temporarily using my organiser as an MP3 player. I also have a new iRiver 550 but I only intend to use it when flying, as I always buy CD's at the airport.
My very personal view is that if you're considering buying an iPod now, it's not a good time to buy. If you can hold off until the end of the year, other exciting products are only a couple of months away. Wait for them to come out, let the 'early adopters' buy them and see how the market settles down. Apple is unlikely to give up their position as #1 MP3 player without a huge fight, but now the big guys who really know what they're doing are getting heavily into the game... And I expect things to get a lot better very quickly.