This iMug holder will be able to hold any iPod (I do not say that it will not be stolen).

Materials-

Coffee mug - Found one in my house so it cost $0!
Scisors -Cut the felt
iPod - I used my IPOD MINI....first gen 4GB, with "Sexy Beast" etched on the back
Ideas - This is self explanatory
Hot glue and glue gun - It's fast and gets the job done, mine also burns a hole in your skin.
Felt/cloth - Fasten your iPod to the the mug, it also adds protection.
Velcro - To easily and quickly fasten the iPod into the holder.

If you have any questions on materials, construction, or design flaws please feel free to post your comments below.

Step 1: Creating the Holder

In this step you will create a holder that will be glued into the mug. I made mine out of cardboard and hot glue, If you had a iPod case laying around you could always just cut that up so that the iPod would slide into it thus bypassing this step. For those of you without a spare iPod case laying around, this is the step for you!

First trace your iPod (I used cardboard for a holder) make sure to leave quite a bit of extra space for the padding (felt). Then cut a back, a bottom, two sides, and a front (can have holes for the scroll and screen if you want to just reach in there and change a song if you don't like it), if you think this is pointless just create two backs (one for the back one for the front). Once these are cut out lay them out so you can apply enough glue to keep it sturdy and secure
(I cut notches out on the top so I could grab my iPod easily) Apply felt to the interior (or leave it w/o and risk scratches). Be sure to add a little glue, maybe a few dots on the bottom 3 or 4 dots on the sides and back for good attachment, but not adding much bulk.
(I did not use this because in the end it didn't end up fitting so I don't include pictures, the other idea below is easier, faster, and the way I did it)

Once you do this add the strap that will hold the iPod in place. I used a long felt piece hot glued to the back of the case (exterior) and brought it around the front to the bottom (of the front) and put Velcro on the felt and another where I was attaching it.

Now you have a holder that will be glued into the mug, don't you feel special?

Another idea is to line the mug with felt , and keep adding more and more until its the right shape so that the iPod will just fit in there (this is what I ended up doing since the cardboard was just a little too thick). If you use only felt and hotglue don't forget to add a strip of felt that is glued to one side of the ring of felt and with velcro on the other so that you can strap your iPod into the mug, if you don't understand something there are pictures below.

ONTO THE NEXT STEP!!!

Step 2: Creating the Earphone Holder (optional)

If you want to be able to hold your earphones nice and neatly, this is the step for you!

First find a tough and thick piece of plastic / whatever you have laying around. I used a car soap bottle, feels about 1/4th inch thick (very difficult to cut) which means it will stand up to the wear and tear. To make something that the earphones will wrap around I used a milk carton (thin, flexible) and made a spool with both pieces. What makes this spool unique is that it will be hidden under the mugs cap with 4 holes in it and slits so the wires can slip in but not out easily so it will be held. It is difficult to explain with words so I'll try to explain with pictures down below.
When you glue it to the lid make sure its on there securely so it wont rattle or fall off.

I ended up not using this in my mug what I did was to just wrap them around my pointer and middle finger to form a loop and just putting them in the crack where my iPod wasn't, outside of the felt where the strap begins (area where there isn't Velcro).

Step 3: Finishing Up and Assembly

Feed your headphones through the cap and start jamming to some Starbucks. If anyone asks why you have an empty mug, just tell them you drank it about 15 minutes ago.

With this, your iPod should remain damage free and less easy to detect (unless you have your earphones connected to it).

Another idea so that they don't see your earphones is to have the earphones come out the bottom or close to the handle so that your hand covers the wires up when you are holding it. Remember, take some fake sips from the mug to avoid suspicion.