Dell is going after Apple's low-hanging fruit with a price and memory capacity that are about the same as the Shuffle. It might be a more compelling device, with the screen and FM tuner, but Apple has its popular iTunes library and offers a better user experience.
This is some low-hanging fruit. Apple tried to sell the lack of a screen as a feature with the Shuffle, so the Shuffle is easy to compete against. But you have to look at the whole environment. Apple's iPods are doing fabulous and their online music store, iTunes, is No. 1.