Boing Boing has an interesting article about this:

[...] Businesses have taken countermeasures to prevent competitors from interoperating with their products for decades. Apple had to break Microsoft's file-formats to give Numbers, Pages and Keynote the ability to read Office files -- they're enthusiastic participants in "adversarial compatibility." Decades ago, IBM lost a high-profile lawsuit against competitors who'd been making compatible mainframe accessories and selling them for less than IBM, wrecking IBM's business-model of selling cheap mainframes and charging a fortune for accessories. The law of the land has generally been that compatibility is legal, even if it undermines your profitability -- making a product does not create a monopoly over everything that your customers might do with that product.

That was then. Now, Apple has the Digital Millennium Copyright Act on its side, which makes it illegal to "circumvent an effective means of access control" -- that is, to break DRM. I don't know if Apple will invoke the DMCA against people who break this latest measure (they threatened Real with the DMCA before) but I guarantee you that the attorneys and investors advising potential iTunes competitors are going to be very conservative about this. The upshot is that iPod owners and the public interest lose out, because competitive products that expand the utility of the iPod are less likely to come into existence, thanks to the DMCA and Apple's locking technology.

And here some more technical details from the original source, iPod Minus iTunes . 

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EDIT: Here how the protection was broken. [via slashdot ]
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Related articles:
Apple announces a 160GB iPod Classic
The iPod Touch with WiFi announced
Apple announced the new fat iPod Nano

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