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.
Step 2: Make It
I made the holes in a way to keep the speakers in place (speakers stick out the front a little bit) and then to make sure they stayed in place I mounting-taped them to the base.
I made handle holes at the top, these holes also allow you to easily insert and remove your iPod.
I made a circular hole in the front to allow iPod control while it's in the stereo.
I later made small holes at the left bottom corner and right bottom corner so that I could make a 'zip tie' hinge for the lid (so that it wouldn't pop off and let my ipod slide out the bottom)
Step 3: Add Styrofoam
Also, the styrofoam hides the speaker wires and make it all look nicer.
future ideas: add some batteries and put some CCFT lamps (made for computer interiors to make them glow cool colors) in there to make cool lighting effects.