In the small yet capable category the MobiBLUE DAH-1500 MP3 player firmly fits. The tiny audio player is just under one cubic inch in size yet packs 512 MB of memory and an FM tuner inside. Anything But iPod has a nice review of the little wonder including tips on how to avoid losing it. The OLED screen is nice and bright too. GBP 99.
UPDATE: As Josh Einstein points out I should have written cubic inch instead of square inch.