I own both along with a couple of other hard disk based players.Here's what I think.

Sound - The Karma sounds better. Even with the included earbuds, I think the Karma sounds slightly better than the iPod.

User Interface - The iPod is pretty basic here. The Karma far outshines it. The question is, though, how much do you really need? While the Karma does more, the iPod is easier to navigate.

Construction - I have to give the iPod the nod here. I do believe it's more solid than the Karma. The Karma just feels, well, cheap.

Software - RMM is pretty darn good for the Karma. It has a ton of features and for the most part does them all well. The iPod comes with Music Match, which is a POS. However, if you switch to something like Anapod or iTunes, that pretty much puts them on even playing fields.

Accessories - For the Karma, what accessories? No cases, remotes, etc for the Karma. For the iPod, you can get about anything you want. For some people that might not be a deal breaker but I personally like having a lot of gear to go with my player so it can be used in the manner I want to use it.

Data Portability - Again, the iPod gets the nod here. The Karma will do it but you need special software AND you have to have the dock. The iPod, you just plug it in and go. Also, because of lack of accessories, you cant buy extra docks (Although supposedly that is/was coming).

Stability - Im sure Ill get some flack over this but the iPod is more stable than the Karma. The Karma is much, much better than it was in the beginning but it still is not as stable as the iPod.

Warranty - Karma, 90 days. iPod, 1 year

I guess it all comes down to what's important to you. I dont think you can go wrong with either one, it's just a matter of getting whichever one suits your needs. I have a Karma, an IRiver IH-120 and an iPod. I probably use the iPod more than any of them mainly because I have a lot of cases for it and can carry it with me in about any situation I want.