It's an interesting way to go, but I think with how popular the iPod is, the target is missed and this isn't likely to take off.
You see, if I go into a store and buy a CD, I likely want the physical media so I can play it on, oh I don't know... my CD player.
If I want it on my iPod, I've gotta insert the SD card, open explorer, add the files to my iTunes library, then load them to my iPod.
Yes, that's not hard.
But, since I have configured iTunes to rip CDs as soon as I put a disc in my CD player, it seems like I would instead just buy a CD, open iTunes, and stick a CD in, and I would get the exact same results.
To have dozens of very small SD cards to lose doesn't sound fun. To not be able to play the cards in my car without an external MP3 player doesn't sound convenient.
To think that people savvy enough to do what is necessary to get the files to their various digital players are willing to pay CD pricing (!!!) instead of simply downloading the content is definitely questionable.
I think it is a huge leap of faith to expect this to work, especially since most people haven't even heard of it.
The biggest plus may be a bunch of 1GB Micro SD cards to have in excess.