To be honest; if you're not in a hurry, wait for the N3, if you are in a hurry and want a GREAT machine with awesome sound, then the N2 is the one. I have an 80 GB N2 and love it. True the size can be daunting at times, but the machine itself offsets all of that for me persoanlly.
I have an iAUDIO M3 and enjoy it, but it's library and playback limitations make it no better than the iPod Shuffle to me. Now I admit, I don't know all the ins and outs of the iAUDIO yet, so I can't really give complete feedback for it, but the N2 is a very nice piece of equipment and delivers wonderful sound. Regarding the problems you've read about on the forums, I can only state that I've had mine 2 years, play it about 20 to 30 hours a week, day/night and had only one problem with it when I first got it. The "computer" died and had to be replaced and took about a week turnaround time. Other than that, it's been reliable and delivers many hours of much appreciated service.
Just my two cents! [

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Rev. Ronald G.