The iPod music player application stinks (absolutely the most mild thing I can say about this horrendous POS). I can't really think of anything that's good about it actually. Navigation is a simple list. Graphics, when they appear, are small, you can't use all the features in Portrait mode, there are no features except browsing Coverflow in Landscape, there is no way to manipulate the "now playing" playlist - it can only be completely replaced.

Forget about the empeg when thinking about an iPhone or iPod Touch. It just wouldn't make any sense to make an "emulator." What would make sense is a brand new music player for iOS that borrows the best features from a variety of sources. The places to look, IMO:

empeg
Squeezebox (the player AND the default web UI)
SONOS

I'd pay $10 for such an app. Most other people probably wouldn't, but I think at $2-3 it would make some waves. I don't see any reason why it wouldn't be approved either, since it can now use published APIs.