Looks VERY interesting; has a Treo 650 angle (with a Sprint PCS and Pocket Tunes tie-in) near the middle of the story...

Cliff notes:

+Almost ready for prime time.
+Sound quality is not addressed specifically (a la AAC), but does mention low bit rates @48 kilobits per second...
+In theory, this service would free up your Treo SD Card slot for other stuff.
Xdrive's Virtual iPod an idea before its time
By Sam Diaz, Mercury News
Posted on Mon, Feb. 14, 2005

It's not often that we sing the praises of products that are glitchy, have major limitations and require special software to run.

Those are all problems that Xdrive -- www.xdrive.com -- is facing with its new Virtual iPod service, which promises to deliver the iPod experience without the need for a $250 to $500 MP3 player:

That was enough to catch our attention. And even though the initial Virtual iPod service seemed to be more trouble than it was worth, the promise of what it likely will be able to deliver in the not-so-distant future makes it worth the effort.

You might remember Xdrive, one of the companies in the early days of the Internet that pitched paid Web-based storage for backing up files. The company recently added a free music feature -- basically a folder where users can store their MP3 music files for access from any Web connection. Subscribers to the Xdrive service pay $9.95 a month for the initial 5 gigabytes of storage.

Here's the trick to the Virtual iPod service: Using those MP3 files, create a custom playlist in the standard .m3uformat and transfer that playlist file to your phone. When you launch that playlist from your Web-enabled phone, the songs stream from your Xdrive folder to your phone. Plug a headset into your phone and -- voilà! -- you've got gigabytes of music at your fingertips, just like you would with an iPod.

Sounds easy, right? Hold on. There's plenty of frustration in between those steps.

• The MP3 files -- to stream over your phone's molasses-slow Internet connection -- need to be compressed to an even smaller file size. Most MP3 files are saved at the bit rate of 128 kilobits per second. Xdrive wants you to save them at 48 kilobits per second. I can't imagine having to manually re-encode my music files (thousands of them) just to do this -- nor can I imagine ripping CD tracks to such a low bit rate.

• Most phones still do not come equipped with mobile media players -- such as Windows Media Player or Real Player -- that can read .m3u files. Xdrive recommends downloading the mobile version of PocketTunes -- www.pocket-tunes.com -- to play the tracks. That will set you back $15 after a free 15-day trial. And even that had trouble recognizing the .m3u playlist format on the first couple of attempts.

• The music only plays back on smart-phones, such as palmOne's Treo. If you don't have one of those, you're out of luck.

We ran the service through several tests on a Treo 650 using Sprint PCS service. One test had full-size MP3s on an expansion card in the Treo, a second was a playlist streaming full-size MP3s and a third had a playlist streaming scaled-down MP3 files. As expected, the first test went well, the second test bogged down the Treo's Web connection and the third worked like a charm.

That's actually encouraging because all of the issues we faced -- the special media player software, the expensive smart-phone and the slow Web connection -- are likely short-lived problems. It's likely media players will come in mobile versions that can read .m3u playlist files in the near future. The phone manufacturers will likely include music playback features on a broader offering of phones or the price of smart-phones will eventually drop. And we're already starting to see faster Internet connections launched by phone service providers.

For now, Xdrive's Virtual iPod service tends to promise more than it can deliver, but that's OK. It may be ahead of its time, but its day is coming.

The actual press release is here: