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Your analysis was spot on up until you made this needless remark. My praising Apple's brilliant marketing does not equate to my calling their customers sheep.
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Pretty much a corollary of putting down Apple's success to "brilliant marketing" is that customers are too dumb to see through such "brilliant marketing". You may have not meant that Apple customers were dumb, but that's the implication. Other people on the Internet (and even elsewhere on this thread)don't even imply it: they state as a fact that Apple's customers are dumb.
I actually left out a major factor why the Ipod continues to dominate: Itunes. Prioor to 2003, there were hardware manufacturers and digital music sellers, but they were seperate businesses. It was Apple's genius to create an integrated solution and, through software, to make it as simple and seamless to consumers as possible.
When your wife bought her Rio, it was up to her to find new content. She could depend on her techie hubby to rip CDs to her Rio and to find digital music stores online, of course. The ipod customer had Itunes. If the customer wanted to rip CDs , Itunes could that: if the customer wanted to buy and download new music, Itunes could do that: if the customer wanted to make fancy playlists, Itunes could even do that. And all without leaving the trusted Apple system (which Apple haters deride as the "walled garden"). Later , Apple customers through Itunes would move on to be able to buy movies, TV shows, and audiobooks.
It is really the Apple ecosystem that is driving Apple's profits now. Apple may be "brilliantly marketing" the benefits of being in that ecosystem: but for many people, those benefits are real.