I think your third reason, advertising, is where the magic lies. Let's face it, iPods aren't that good!
For starters, the formats supported are mp3, aiff, wav and the M4*s. That's it. I'd like to see them support other common formats, such as the lossless FLAC and Ogg Vorbis. Secondly, you're forced to use iTunes. Nowadays I'm using a Mac, so iTunes runs fairly smooth on my system. iTunes running on a Windows PC however, is a different story. Getting it to handle all my albums, is like running a marathon with concrete shoes. The amount of resources required to keep it running is frightening! Also, why is Apple so scared of me copying songs FROM an iPod to a PC/MAC? Sure, you can get third-party software to handle that stuff, but i don't want that. Why would you buy a car that won't go in reverse?
Being a one month iPhone user, I liked being able to watch videos on it. Well, at least I thought I could until I tried to transfer some. Most of the video I've got is in either .wmv or divX .avi which the iPhone/iPod Touch won't handle. Again I am forced to do hours of encoding using the famous Third Party. Apparently, Apple wants me to buy everyting from iTunes, but this is a service they only provide in the US!
Still, iPod is now a synonym for mp3-player. Even my 82 year old grandmother has heard of the iPod. This leads me to something Apple succeeds at; convincing you that as long as the product has a half-eaten apple, it's brilliant. It really doesn't matter if it can't do what any of the other devices can do. It's all about the way it is presented. It seems as if they can release just about anything and create a hype about it. When the new iPhone OS 3.0 was released, Apple had a world of fanboys going wild over a simple copy/paste function. This is something even the HTC I had 5 years ago could do.
Yes, Apple are innovators, there is no doubt about it. Still, it is their ability to drown the missing features, and instead advertise heavily the new ones that make them one of the top companies when it comes to customer loyalty and branding.