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I'm guessing something like "Bluetooth 2" (my creation using 2 channels to have enough bandwidth or something ) would would make form factor a nonissue.

Bluetooth 2.0 already exists and has EDR which gives you 2.1mbps. It doesn't use multiple channels though, it just transmits faster. Bluetooth 1.x gives you 723.1 kbit/s. If you're just streaming MP3 data over Bluetooth then 1.x would be fine.