The Zune is ok, the big screen is nice. They have already hacked the operating system on there so in the near future you will have the options to do what you want with it.
I've heard better things about the Creative Zen Vision M, way better video support, can do Divx and Xvid without any conversions, while the Zune or iPod can't. They can be had for less than a Zune as well, Amazon has the Vision M's for under 200 brand new, lowest I've seen on a Zune is around 230 new on ebay.