iPod shuffle 512MB costs approx Rs.4500/- (US$99), and can do recording (off USB) and playback (off stereo jack). Works with linux and a standard amplifier.
Better still, for the people that work with logic-levels and electronics, here's a neat project that uses the STA013 chip from ST Microelectronics...
http://www.pjrc.com/tech/mp3/sta013.html
The project isn't much complex. Have a look at it.
Regards,
ah