It is rather obvious that Apple will likely make some kind of home media device at some point, if the financial press is coming out with this.
It should not be all that hard for them just combining the iPod photo with their Airport Express add a remote control and you'll have the Airtunes JukePod. It could connect to the TV just like the iPod photo does now to show photos and maybe even do visual effects like iTunes, and the stereo system like the Airport Express does now, it can also connect to the Internet via the Airport Express it could even be a web surfing device like WebTV at the very least it should be able to connect to the iTunes Store to download more tracks. Even if all it did was connect to the iTunes Store that would be good enough for a lot of people.
All it needs is a good remote control, Apple is really good at Human Interface stuff so it would be very surprising if the remote wasn't good. Wether they good with IR or Bluetooth is a question, but I would think Bluetooth is the most likely way for them to go.
I would say after they work out the bugs and get feed back on the iPod photo I would see them bring something like this to market. So most likely summer 2005 or certainly before Christmas 2005.