Thanko Japan, which has been making MP3 watches for a while now, has developed two watches that can now record sound as well. One has 512MB of flash memory, and the other can store 256MB. They both can record audio in the MP3 format, but unfortunately they connect with the mother ship via turtle-slow USB 1.1. Able to play back MP3s and WMA files continuously for nine hours, the 512MB watch is $160 while the 256MB variant is $120.
MP3 Player and Recorder watch from Thanko [NewLaunches.com]