I saw an mp3 player on Fatwallet that is supposedly the world's smallest. While I don't doubt that, I wanted to add some observations in addition to this review. First of all, it's a cube, so even if it's volumetrically the smallest, wearing it under your shirt probably will still be kinda conspicuous. The review didn't mention any file delete or marking features. The necklace is integrated with the headphones, so you probably won't be switching out for a better pair, and if you lose 'em, it might be hard/expensive to replace.
Still at $130 for a gig, it looks pretty sweet. I wouldn't get it, but it does have a lot of what I look for.