Ok, I will try to explain and I am sure that more people could chime in. Forgive me for making this long, but the questions is like asking "What is the difference between this $3,500 mo-ped and this $35,000 Ford Explorer?" They are both vehicle that can get you from point A to point B, but they are very different inherently. Same as the difference between the $39 MP3 player at CVS and the $199 and up ipod.
Lets start with digital music as a medium. There are a few different types of music files. MP3 is what we hear a lot. It is one of the older types of a music file. Back in the late 90's a few programs appeared which allowed people to "rip" their music into MP3 format - kind of like saving a word document as a text file. When Apple introduced the Ipod they also introduced a new format called AAC. Old Ipods could only play AAC files. The other format is WMA files. If you have windows and use Windows Media Player to save music to your computer, your computer will save your music as WMA files. Songs will vary in file size based on compression rate (quality) and length. The average song runs about 4 megs.
Next, we will talk about how music is obtained. All music makes it into electronic form by people. I put my CD into my computer and I save it as a digital music form (MP3, AAC, or WMA). Prior to 2001, MP3s were widely available to anyone with an internet connection via Napster. Basically, Napster allowed me to show the world what music I had digitially, and it allowed me to see everyone else's music if they were signed onto Napster. It then allowed me to choose a song and save it to my computer, if I wanted to. This changed when the courts ruled that what Napster was doing, or more accurately, allowed people to do, violated copyright laws. Since then, there was a struggle to find a way to fill the void left by Napster. People wanted to obtain music electronically without buying a cd and ripping it. Some people developed programs very similar to Napster but different enough to temporarily skirt around the court's decision about Napster. At the same time, big companies including Apple struck deals with the Recording Studios to provide music electronically to consumers at lower prices (iTunes). So now, consumers can obtain songs without using borderline illegal methods. (It is useful to point out that obtaining music through Napster was never illegal, it was providing it to others that broke the law.)
So now you know about electronic music. Let's talk about players. There are 2 types of players - drive based and solid state. The bigger, say 20 or 30 gig ipods are drive based. That means they have a tiny hard drive inside their case which store the music the same way your computer stores word documents and pictures. These players can hold far more music than solid state players but are more prone to internal damage if dropped. Solid state player are (usually) smaller than drive based and hold less music. A 4 gig player will hold about 1000 songs. Solid state players are less prone to internal damage if dropped because the music is not stored on a hard drive but rather flash based memory (the same type of memory that saves the pictures on your digital camera). Solid state players are almost always less expensive than drive based players.
So now we talk about individual brands. Ipods are the industry standard in many respects. The most popular brand of digital music player, many believe that the user interface of the ipod is the best around. Because of its popularity, many accessories exist for ipods. There is also a large internet community for support if you can't figure out your ipod. Other players such as creative have attempted to steal some of ipod's market dominance, but they cannot compete with the status symbol that the ipod has become. I have a drive based ipod, I love it. I think it works very well and I use it as a music player, not a fashion accessory.
Back to the OP's real question - $39 player or ipod. Chances are the $39 player holds about 60 songs, while the $199 ipod will hold about 500. The Ipod has tested and proven software that comes with it, the CVS brand...not really sure. Ipod have fully rechargable batteries with very good life. Itunes gives you safe, secure, adaptable and legal way to download music. Using Limewire as you currently do may leave you open to a lawsuit.
Take this information for what it is worth - ramblings of a fellow diser who happens to be pretty involved in his digital music and has his own opinions about his ipod.
Hope this helps...