I see it as a blank canvas device, the iPod without any default software. If I had it the way I wanted it, what would happen is you would build a bunch of different "stations" for it to "dock" with and fall into that mode of usage. Plug it into the default station and it's an alarm clock. Undock it and plug it into a car's dashboard and it becomes ChumbyNav. Unplug it and plug it into the kitchen docking station (built into a coffee maker no doubt) and it becomes ChumbyCooks, the Chumby Cookbook. Take it into the hall and plug it into the thermostat docking station and it becomes your house monitoring station.
Each "station" could have a different set of hardware built into it to allow for the Chumby to have different capabilities when used in that role. A digital compass built from an accelerometer and gyroscope for the car (along with a small extra flash chip to allow for it to store downloaded maps), a thermocouple for the hallway computer, a digitial I/O interface for the kitchen (for turning on and off the coffee maker, etc), or nothing in the case of the alarm clock. Each dock has the capability of charging Chumby (if you use a rechargeable battery with it).
Because the hardware module itself is small and because the platform is so open, you could build a generic "ChumbyConnector" and allow it to connect up with anything you choose, including an iPod, digital camera, whatever. It allows for the device to be as flexible as you want it to be.
Or at least, that's how I intend to modify my Chumby once I get one. I'm working on a lithium ion battery charger based on the schematics I downloaded from the site, and I intend to modify my Chumby (when I get it) to run off 1 or 2 1800mAh batteries from iPod battery replacement kits.
The point of it is, you don't have to add modifications to the base unit. Build it as cheaply and generically as possible, and let the users build modifications for it, and possibly resell them if they choose to. This allows the device to literally become as flexible as possible, while still being cheap enough that people will want to buy them.