I think Microsoft really missed an opportunity with the Zune. Creating an MP3 player with built-in ad-hoc wireless networking would have been a work of genius had it not been utterly crippled to satisfy content providers. If you "squirt" a song to someone else they can only play it three times and it goes away in three days. Suppose that they had ignored the wishes of the RIAA and instead created an MP3 player which squirted unencrypted songs at random to other MP3 players in the vicinity. It could even compare playlists with other devices in range and squirt songs it thinks the owners of other players are likely to enjoy (a la last.fm). This would be an absolutely killer application for an MP3 player - I'm sure lots of people would buy it just for the unlimited free music and it would make a fortune. Unlike using internet-wide sharing apps, it would be very hard for the RIAA to track down who is doing the sharing, since the networks would be geographically localized.
What about that pesky copyright problem, though? Well, with all the money they made from the hardware, I'm sure Microsoft could afford to fight (and win) a few copyright lawsuits. Saying "you may only use this player with music whose copyright is owned by someone who doesn't mind it being distributed in this way" ought to be enough to comply with the law (assuming no new anti-P2P laws are created in the meantime).
What about having the artists get paid? Well, the player could include software which says things like "Hey, I noticed you've been playing a lot of music by artist X lately, why not buy their new CD, buy tickets to their concert in your area or just donate some money to them so that they can continue to record" and provides convenient links to do any of those things. If those links worked for non-RIAA music as well as RIAA music, it would eliminate the need for the major recording labels altogether. The RIAA definitely wouldn't like that, so it would take someone as big as Microsoft to pull it off.