Kinda late to the topic, but I was searching around and found this.
I can tell you that without a doubt people are buying iPod Porn. You might be surprised, but PSP's are selling just as much, if not more, right now. And with other devices like Zune coming out, there's only going to be a bigger and bigger market.
You can tell that people got them for Christmas, too because we saw huge spikes as early as noon on Christmas day for sales.
It's true that watching it on a big TV will be best, but hey, people still read dirty magazines and they don't even move or make noises.
If anyone's interested in an Affiliate Program that caters to this market and wants some help in setting it up, check out my sig. I'm the webmaster of that site.
If posting like this is against the rules, I apologize. Just thought it was interesting that someone wondered if there was a market for portable videos -- which is what an iPod video is.
Hell, if people download Lost to their iPod what would stop them from downloading some smut?