Wired News has published an article about the development of the original iPod.
It quotes Ben Knauss, a former senior manager at PortalPlayer Inc., the company which developed the first iPod prototypes. According to Knauss, once Apple bought into PortalPlayer's idea, Steve Jobs was intimately involved every step of the way, and largely shaped the look-and-feel of the unit.
Interestingly, the original iPods were built specifically with no digital rights management in mind, because they thought it would hurt sales from the iTunes Music Store.
Ironically, Knauss quit PortalPlayer before the iPod was released, because he thought it wouldn't fly, and now works on contract with Microsoft.