I don't know if anyone from DNNA (I'm assuming they do product development not Empeg) looks at this forum but I've used the iPod (mk1 & mk2) & the Karma, and this is what I think the Karma MkII should be like:
The scroll weel should be replaced with a touch sensitive pad around the Rio Stick
Power button should be combined with either the Rio Stick or Menu buttons
The hold button should be on the top edge (near earphone socket) and more solid
Volume controls should be face mounted
There should be more rubber around the edges, maybe both sides should be 100% rubber.
The plastic used for the screen should be scratch resistant
Eliminating the wheel should make the product more durable and along with removing the buttons from the side should make it easier to make a case. The rubber would act as crash protection and enhance the chunky/industrial look of the original and take it even further from the shiny prettiness of the iPod. And I'm sure all users would appreciate a less scratch prone screen.