Zune: 3.2" with a 320x240 resolution
iPod: 2.5" with a 320x240 resolution
Zune with the 3.2" screen wins when it comes to screen size and better watchability of movies and video clips. The larger screen size does come with a cost which of course is a slightly bulkier player. If you are, however, looking for an MP3 player that can use to watch movies, videos, etc., on the go like on the bus or car then the Zune is the way to go for the screen category.
Zune: Yes, with wireless download, sharing, and syncing.
iPod: No wireless capability.
While not necessarily a deal breaker for iPod by any means, the Zune does feature built in Wireless G connectivity which makes for easy music download and syncing with computers on your wireless network at home. So as our society becomes more and more wireless and on the go, some people may like the idea of having their MP3 player be completely wireless.
Built in radio (FM tuner):
Zune: Yes, with FM song purchasability if you like what you hear
The radio really isn't that important when talking about an MP3 player (especially a 120 GB model) because hopefully you already have all the music you want to listen to already available static and ad free. But again, it's something to mention in case someone cares.
Zune: Tactile plus touch sensitive controls
iPod: The touch sensitive click wheel
Personally when using both iPods and Zunes I am a sucker for old-style technology of clicking up and down for navigation (ala Zune) but I'll stick with the general consensus that iPod's navigation is better. And I will definitely agree too that iPod is MUCH MUCH better at scrolling through long, LONG lists of songs than the Zune is.
Zune: 36 hours maximum
iPod: 36 hours maximum
Both the iPod and the Zune have the same battery life so it's a tie.
Supported file formats (bolded is an exclusive file format for the MP3 player):
Zune: MP3, Zune Marketplace (protected), AAC, WMA, .aa (Audible), JPEG, WMV, MPEG-4, H.264
iPod: MP3, iTunes (protected), AAC, AIFF, WAV, .aa (Audible), JPEG, BMP, MPEG-4, H.264
So looking at the file formats supported, both players share relatively the same files except for the Zune has the support for the Windows exclusive formats. While you don't see a whole bunch of WMA music files floating around you do see a lot of WMV movies which could make moving movies onto your MP3 player much more convenient.
If you are looking for a cheap MP3 player to use for on-the-go entertainment like videos and movies, the larger screen on the Zune is hard to pass up and will by far be worth the hassle of having a slightly bigger player. If, on the other hand, you're a big fan of the touch wheel on the iPod and simply hate any other navigation tool, then the iPod is your stud. But in the case of the overall verdict of this article of what you should choose:
Zune is your BEST bet.