the money invested in advertisement was really something in a completely different league than what the rest of the mp3 player manufacturers could do.

Which begs the question: Why has the Zune not overtaken the iPod yet?

That's starting to slip as iPhone and iPod prices come down

It's not Apples MO to drop prices. Rather, they introduce new models and keep the prices level.

Apple's reaction so far has been to raise iTunes prices.

The changed prices in the iTMS has been a reaction to nothing other than the fact that this was a demand posed by the record companies in exchange for them allowing Apple to provide DRM-free versions of their entire catalogues.