d&m did think the brand was worth enough to take a risk

No. D&M decided that the "Rio" brand was worth enough to take a risk. The "SonicBlue" brand wasn't picked up in auction. It was sucked dry of assets (namely Rio and ReplayTV -- GoVideo were sold earlier) and left to decompose as an empty husk at the side of the road.

I'd say their current strategy is to take Rio back to their core compentency - high-end portable players

Totally agree. Rio's core competency is (and was) portable MP3 players. The S-Series (and the newer portables) have done a great deal to reinforce this position in the marketplace. Sonicblue's core competency seems to have been coming up with great ideas and then failing to give them the marketing and development committment needed to make a success of them (cf Rio Central, Rio Receiver).

One thing worth noting is that it's unlikely (in the short term) that D&M will move Rio back into the home MP3 space (i.e. a Rio Central-like product), because they've already got plenty of brand recognition (albeit not MP3, IIRC) in the home space with the Denon and Marantz brands. Moreover, they have got (extremely pretentious IMO) high-end home MP3 coverage in the form of Escient.

None of these have anything to do with Rio, per se. When I left Rio last month, there was little or no cross over between the DNNA brands (Rio, ReplayTV, Escient), let alone between the parent D&M groups (DNNA, Denon, Marantz). This may change, but probably not soon.