This small Insigna 2GB Sport Video player plays MP3s and WMAs, has FM, and is really tiny. It also plays back video on its 2.2-inch screen—which looks actually pretty decent. Unfortunately Biggs couldn't get video to work on it, as it doesn't support DivX. And all Biggs had were pirated movies.
If it weren't only around $99, we'd say screw it. But your grandparents aren't going to know the difference between this and an iPod anyway.
Product Page [Best Buy]
Insigna 2 GB Sport [Crunchgear]