Hi deuterium,
Welcome to Audiocircle!
Going the iPod route has the advantage of having a built-in hard drive, so once you download your 60GB of music, you don't need to be connected to your computer to play your music. I also find the iTunes/iPod interface to be first-rate. The iPod is much smaller and you may like that for portable use.
Going with the Squeezebox requires that you are connected to a computer (wired or wireless) running Slim Devices Slim Server software. The fully modded SB3 is going to be quite a bit bigger than a modded iPod. The battery enclosure itself is 6" x 8" x 3".
Regarding the sound quality (using lossless compression or .wav), I'd say the iMod has a warmer tone. The modded SB is a little bit more detailed and dynamic, with a little more bass punch. Both have very black background and are very clean.
The line out of the iMod is ~ 1Vrms, while the modded SB is ~ 2.1Vrms. As long as your headphone amp has enough gain, the 1Vrms output of the iMod should not be a problem. In fact,the lower oujtput voltage of the iMod can be an advantage if you find that you have "hair-trigger" volume (gets too loud too soon on the dial).
Hope this helps!
Best,