The Japanese company’s share of the portable music player market rose to 43 percent, surpassing Apple’s 42.1 percent and ending the iPod’s 241-week run as Japan’s top portable media player.

A noteworthy victory for the Japanese electronics giant, but one that says more about just how far the once great company has fallen than anything else. That it took Sony (SNE) this long to unseat Apple (AAPL) in its home market is astonishing–all the more so given the vast success of the Walkman and the mindshare it once commanded.

And one could argue that Sony hasn’t actually beaten Apple at all. BCN’s survey didn’t include the iPhone because it views that device as a phone. But obviously, it’s an iPod as well–BCN notes that the handset has clearly cannibalized iPod sales. Had BCN classified the iPhone as the media player that it is, Apple would almost certainly have maintained its lead over Sony in the Japanese market.

The biggest unknown is price, which went unmentioned during the demo. My assumption is that Palm would try to take market share by coming in significantly lower than the $200 or so Apple wants for its iPhone. But when I ran that theory by Palm CEO Ed Colligan, he looked at me liked I’d peed on his rug. ‘Why would we do that when we have a significantly better product,’ he asked, then walked away.”

– Peter Kafka, MediaMemo

CEOs and Palm evangelists convinced that Palm’s new Pre handset is anything more than table stakes at the handset poker game would do well to consider two bits of Apple (AAPL) news and rumor that suggest Cupertino may be hard at work on a next-generation handset capable of mercilessly beating all others into sobbing submission.

The first: A rumor that iPhone 3.0 will support quad-core processors destined for an upcoming iPhone hardware revision. If this proves true and Apple (AAPL) does release a multi-core GPU iPhone–which is not as much of a stretch as you might think–it would likely support features we’re more accustomed to seeing on the PC. And as The Apple Core’s Jason O’Grady notes, “It would slaughter pretty much every portable gaming platform on the market.”

The second: Apple has applied for a patent on a behind-screen camera that could capture images “while the display elements are in an inactive state (in which the display elements are darkened and at least partially transparent).” It doesn’t take much of a leap to see that technology brought to bear on a next-gen iPhone and the long rumored iChat AV Mobile.

Those are two potential killer features for a device that already has three things the Pre does not: a maturing platform, a thriving developer ecosystem and a market leading music player and store. Are they just rumor and speculation? For now, certainly. But given the pace of innovation in the mobile industry, and more specifically, at Apple–where the multi-touch phone that Palm (PALM) is now aping originated two years ago–they’re not beyond the realm of possibility, are they?

After being plugged in for somewhere between 5 to 10 minutes I heard a sizzling sound. I looked down on the iPod just in time to see it explode open and start shooting sparks and spewing smoke. I managed to unhook the iPod from my computer’s USB port immediately. I noticed that a small fire had started on the table I had the laptop and the iPod sitting on, and I managed to extinguish those flames quickly before any apparent damage could be done to my laptop. Unlike in other cases, I’ve read about, my iPod continued to spew smoke and spit sparks while throwing out some kind of sooty substance from the inside of the iPod for several minutes after removing the cable from the computer.”

– A Consumerist reader recounts his experiences with Apple’s iPod Flamo

What an ugly week for Apple. Voice and data reception issues plaguing iPhone 3G, MobileMe still not up to company standards and now reports of sparking iPod Nanos. Japan’s Ministry of Economy, Trade and Industry (METI) is investigating a possible battery defect in Apple’s older iPod Nano music players after receiving reports of minor fires caused by overheating devices. “There have been multiple cases of overheating and fire damage, in particular during recharging, so please use caution,” METI said in a statement on its Web site.

METI is working with Apple Japan to diagnose the problem, which is said to affect only Nanos sold in Japan between Sept. 2005 and Sept. 2006, although there have been reports of similar incidents in the states.

Another tough break for Apple (AAPL), which just can’t seem to shake this negative news cycle.

UPDATE: Apple just issued the following statement:

Apple today responded to statements reported by Japan’s METI regarding batteries in the first-generation iPod nanos. Apple has determined that in very rare cases, batteries in first-generation iPod nanos sold between Sept. 2005 and Dec. 2006 can overheat, causing failure and deformation of the iPod nano. Apple has received very few reports of such incidents (less than 0.001 percent of first-generation iPod nano units), which have been traced back to a single battery supplier. There have been no reports of serious injuries or property damage, and no reports of incidents for any other iPod nano model.

Any first-generation iPod nano customers who have experienced their battery overheating should contact AppleCare for a replacement. Any other customers who have concerns about their first-generation iPod nano battery should also contact AppleCare.