They are somewhat doomed to iTunes, but not completely. I doubt Apple would stop music apps from going on the App Store. However, I'm not sure if something like Cog would be needed since iTunes is more of a stripped down version and it's likely that someone would port perian to it to have all the happy funtime codecs (Assuming it uses the Quicktime API, which it may not...).
Also, there are some massive differences when programming for the iPhone and you would basically be rewriting a good chunk of it from scratch. For one, the UI needs to be completely redone because those aren't compatible at all. Secondly, I doubt the audio interfaces are the same, though I do believe the iPhone supports AudioQueue, so maybe the core playback framework could be shared.
Let me know if you want to take it up though, I'd be happy to add a branch to SVN for you to work off. It'd also give me a really good excuse to get one