For one, it would require making very specific agreements with the music industry to support that price structure, and I don't think Apple trusts the music indu

For one, it would require making very specific agreements with the music industry to support that price structure, and I don't think Apple trusts the music industry much. But, more importantly, console games are much more difficult to pirate. Sure, you can do it, but it usually involves either soldering on a 3rd party chip or going through an in-game exploit + hacked ROM process, which most people aren't going to bother with. The vast majority of those cheap iPods would just be full of downloaded music, and the hardware manufacturer would take a huge loss.