Yes, of course! Who cares what Steve Jobs and Jon Rubenstein (the "fathers" of the iPod and people most directly responsible for what the iPod does) say?
The point is, it wouldn't sell. Sure, it'd be a cool feature, but I'd be willing to bet that the people here screaming for a video iPod would not go out and drop $600 - $1000 on a video iPod the minute it was released. I think that people want the features, but would not purchase a piece of equipment like that.
Apple doesn't go the way of other companies trying to get a leg-up in the industry. Just because a feature would be "cool" doesn't mean that adding it would help sales. I think a video iPod would be too out-of-reach price-wise for most people, making it a slow seller and ultimately a profit-loser (remember the Cube? Great design, small form-factor, priced WAY out of reach for just about anyone). The demand just isn't there for a high-cost portable video player, as Microsoft will soon see. You can get a DVD player for under $100 now, a portable 7" DVD player for under $300, and a Power Macintosh for under $900. What use would the world have for an iPod that costs more than $600 and plays videos that have less quality than a DVD on a tiny 2" screen?