Step 1: Get the stuff
get some speakers. I found some from a really old computer that didn't have an external power supply (no wall adapter). All the power is supplied via the audio-in jack. Using this type of speaker allows the stereo to be easily portable because the iPod's battery is used to power the speakers. If you're using speakers with a wall adapter for power and you want to make your stereo portable, just wire up some batteries of the wall adapter's voltage to the speakers.
My speakers have a very nice high volume and used the iPod battery very slowly. they were made by botsch (don't know where you could buy them, they came with a very old computer of mine).
I had some packaging styrofoam sitting around (I save all kinds of materials in boxes).
I used a dremel, which made it pretty easy to cute all the holes, without a dremel might be a pain but you can do it.