There's no simpler or more flexible digital music offering than the Sonos, but you're looking at about a US$1,000 gift. We recommend giving this one to someone you live with, so you can enjoy it too.
Honorable mention: If the Sonos system is a bit much for your budget, consider the US$300 Squeezebox from Logitech instead. It requires more setup than the Sonos system, and you'll need to BYO amplifier, but you'll end up with much the same funtionality.
The Squeezebox is a slab of circuitry measuring 7.5 x 3.75 x 3 in. and sporting a two-line display, Ethernet port, built-in 802.11g wireless, and RCA analog and optical and co-ax digital outputs.
You download and install the SlimServer software (available for Windows, OS X, and varieties of Linux, as well for an Infrant ReadyNAS) and point it at your music folder (or at your iTunes library). Then you hook the Squeezebox up to your amplifier, plug it in, and use the included (screenless) remote to connect it to your network.
You can browse playlists, listen to Internet radio, and even access your Rhapsody or Pandora accounts. You can put another Squeezebox in another room, and play either different music or the same music. The only real limitation is that it can't stream iTunes-purchased AAC songs. (Neither can the Sonos, or any other third-party player.) But as your giftee sits on the couch listening to his Best of 2007 playlist, he'll be thanking you with every song.
Sonos Digital Music System Price: US$350-US$1,200 for various configurations
Summary: The most flexible and capable home streaming music system available, the Sonos is definitely a high-end gift. Buy it for someone who'll let you listen too.
Squeezebox Price: US$299-US$305
Summary: The Squeezebox lets you stream the music on your PC to any room in the house -- just supply amplifier and speakers.
iPod speaker system: Geneva Sound System
Most iPod speaker systems take their function quite literally: They're iPod docks with speakers attached. Not that there's anything wrong with that. If you just want to listen to your iPod over something other than earphones, there are several models that do a fine to good job.
Geneva, though, is after something else. Rather than just adding speakers to an iPod, they've built iPod connectivity into a complete home stereo system in a single component. The three Geneva Sound System models (US$500--US$1,275) feature iPod docks on the top, but they also have FM radios, CD players and jacks for attaching other components.
Model M has two tweeters and two woofers driven by a 4x25-watt amplifier; Model XL has two tweeters, two woofers and two subwoofers driven by a 6x100-watt amplifier. It's all enclosed in a seamless box made of piano-lacquered wood in black, white, or red.
Most astonishing is the way the incorporated EmbracingSound technology can create a stereo image that's much wider than the box itself. Stand in front of it, and it sounds like the sound extends a good 12 inches to the left and right of the unit; sit off to the side, and the stereo image remains intact. (Geneva claims a 120-degree sound stage.)
Available direct from Geneva or at Design Within Reach stores, the Geneva Sound System makes a great gift for someone setting up a new household in limited space.
Summary: The Geneva Sound System packs a complete stereo system along with an iPod dock in a single box that can fill a room with high-quality stereo sound.