Consistent product improvement (even though in small increments, nothing too dramatic) allows them to maintain a lead on their competitors, generate news and market share. They do upgrade the iPod about once every year, it helps to keep iPod consistently in the news, and each time it brings new buyers as well as existing owners who are upgrading. Perhaps existing owners won't upgrade with every generation, but they're likely to upgrade at least a couple of generations down the road.
In comparison, Rio doesn't come out with new players often enough to really generate any sort of a buzz, Rio Karma is still stuck at 20GB. Of course the real issue is more complicated, because the economic issues behind it, has Rio sold enough Karmas to justify the R&D spending on coming out with a new device.. so on.. so forth. Anyway, we know that iPod's sale far exceeds any of its competitors, so the demand is always higher than their production.
At the same time, look at Creative Labs, I believe that they've matched, perhaps even exceeded the number of hard drive based players compared to Apple year by year. There's so many different versions of Zen players and Jukebox players...