1) It can be used as a USB hard drive no problem. To manage music you have to use iTunes (without some sort of third-party solution), but you can still use it as an extrnal storage device.
2) It plays MP3 and AAC files, but not WMA or OGG. I know this affects /.ers more than most, but it's an issue I've never gotten. (Also, if you try to import music encoded as WMA, iTunes offers to convert it to MP3 or AAC for you)
3) It may have been over-priced at one point, but right now the iPod costs basically the same as most name brand competitors (i.e., Creative, Samsung, etc.)
4) Battery life, as with any electronic device, is a crap shoot. I've had a monochrome 4G for 2 years, and while the battery life isn't as good as it was when new, it still will go through a day with no trouble. I've had laptops (which I've paid a lot more for, obviously) that had batteries that lasted 1 year before crapping out
5) I live in Michigan, it gets pretty cold here, and I've never had a problem with it not working. Now I don't know if I'd take my HD-based player jogging, but that's not an iPod fault, it's a problem with physics... The nano or shuffle would work just fine jogging in the winter.
As for the UI, every one is different, but the scrolling interface for me is very natural. If you're spinning your finger in a circle, you stop when you see what you want on screen. It comes down to what you're used to, but there's a reason that Creative started using their "slider" style interface; a lot of people find the touch-sensitive interface very intuitive.
As with any device that's become iconic, there's a large counter-revolutionary faction that says "It's popular! The sheeple use it! It must be bad!" And if you want to be different, that's a valid point. But the reason it's become so popular isn't just because of a crowd effect or canny marketing, it's also because Apple knows how to make a product that, for a lot of people, is easy to use and just works.