I took an Altoids Smalls tin, and cut the sides off. Then i attached that into a full sized Altoids tin with a hole drilled in the side. There is cloth inside the tin, to keep the ipod from rattling. There is also a place to store actual altoids so you don't get busted for having it in school.
I like your idea, but how would the altoids in the tin help if your ipod was right there and the cord was sticking out?
If you yank out the earbuds, the ipod pauses automatically. You'd have to do it in the time when you are taking out the tin.

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