At the time it was a heavy music player with an annoying interface that only worked for mac users and was useless forever if you dropped it and the hard drive broke.
They fixed all those problems later versions, but the initial device was underwhelming to a lot of people.
I had an early one, and loved it. It's been slowly forgotten about over time, but the scroll wheel interface was an amazing innovation. Even years later I'd see people with MP3 players with up and down buttons struggle to scroll through a large list, whereas the scroll wheel made it comfortable, fast, and easy to control.
The on thing of note is that Mac users seems to include a massive number of people involved with media production. This including artists of various stripes.
From personal anecdote i think i first heard about iPod when people started chatting about what those white earbuds some artist had been spotted using.
And i sure as hell don't think Apple was in the position to pay them to use the iPod publically.
Apple tends to be pretty good at releasing 1.0's where the problems can be fixed as tech improves, rather than being fundamental design flaws (though they manage those as well.. coverflow)
They fixed all those problems later versions, but the initial device was underwhelming to a lot of people.