This is a good idea, maybe set flags at the beginning of each phrase and then those flags reference the phrase of the lyrics. This would be easier to do for new purchases, but what about songs you already have? Would need a way to update the songs with the correct flags and phrases to scroll across the screen. This would also be a good option for Windows Media Player, Real Player, WinAmp, etc. when you are listening to music on your computer. This would end a lot of lyric-related arguments and song-meaning misconceptions and I hope this becomes a reality.

I absolutely agree with this. I've always wondered why lyrics arent already a feature of an iPod

Come to think of it, there is another functionality that would make the whole thing fun to use: searching the library by words or strings!

If you own the iPod Video this should be no problem. To do so, you create a Note with the lyrics of the song you want with a filename corresponding to the song artist/title for easy browsing.