Sony can't be bothered to compete with Apple in that era. They were trying to recover from their DRM dreams, and their devices were already sounding great with in-house software and hardware.
Creative's Muvo^2 already was the poor man's iPod with surprisingly good audio quality as well.
I feel like this completely misses the mark. Audio quality was never the compelling feature of the iPod and people weren't clamoring for it because it sounded good.
When the iPod came out you largely had two options for carrying your music collection on the go. You either carried a binder of CDs, or you had some niche player like Mini-Disc or an MP3 player. Both alternatives were expensive and had limitations similar to a CD in terms of number of tracks you could carry.
I had an MP3 player on either side of 2000 that was slightly smaller than a deck of playing cards that could use Smart Media flash memory cards. The largest card at the time was either 16 or 32mb and was enough to hold 1 album at near CD quality.
Creative's Muvo was a weird form factor that was larger than an iPod. It had a horrid interface both on device and for loading music. It's only grace was that it was slightly cheaper than an iPod and didn't need a Mac with FireWire. Although iircc this was pre USB 2.0 so not having FireWire would mean loading music took forever and a day.
The iPod allowed you to carry most, if not all, of your music collection in a package slightly larger than a deck of playing cards. And it had a fantastic interface for navigating music on the device.
This was at a time before most people had laptops and if you had a PC it was at home and used sparingly. The iPod was such a compelling mobile computing device that it drove adoption of the iMac. Apple would eventually release iTunes for Windows and USB support but that was many years later.