The fewer moving parts the better, although iPods aren't meant to run 24/7 you can always go cheap (like a Shuffle) and replace them when they burn out. I think Apple will provide some kind of a credit towards a new unit if you bring the old one in to recycle. If you already have some kind of cable or satellite service in the building you might also consider using a dedicated receiver to play music from one of the music channels. Given that dishes are subject to weather, etc... it would not be a great idea to put one up just for hold music.
Using a Y cable to sum the two sides should work fine. Provided you don't have any Beatles on your playlist the average Joe/Jane on hold probably wouldn't even notice if you just used one side. If your source doesn't provide enough juice or if there are impedance matching issues, you can try a music on hold amplifier in line like the RDL TX1W.
If you're a large business, unless you're already paying licensing for the music (and this gets complicated quickly with MP3s) you may want to consider some kind of a service (Muzak, PlayNetwork, DMX, etc...). These services pay the licensing fees for you so you're covered if ASCAP/BMI come knocking. Such instances are rare, but it does happen.