Interesting, it's good to know that the problem is reproducible. Thanks a lot for your efforts.
If I use shorter filenames, the device works wonderfully. I'm not really sure if iRiver people do know of this character limit, at least it is not detailed in the manual nor was mentioned as a probable cause by the technician with which I wrote to. I'll let him know and tell you his answer, but anyway this shouldn't happen because as already pointed by frostschutz, such a loop with files located in the inner memory may brick your device. I'm glad I didn't try that.