A BBC article entitled iPod fans 'shunning iTunes store' states

The Jupiter Research report says that, on average, only 20 of the tracks on an iPod will be from the iTunes shop.

Far more important to iPod owners, said the study, was free music ripped from CDs someone already owned or acquired from file-sharing sites.

The report's authors claimed their findings had profound implications for the future of the online music market.
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However, the report into the habits of iPod users reveals that 83% of iPod owners do not buy digital music regularly. The minority, 17%, buy and download music, usually single tracks, at least once per month.

On average, the study reports, only 5% of the music on an iPod will be bought from online music stores. The rest will be from CDs the owner of an MP3 player already has or tracks they have downloaded from file-sharing sites.

This jibes with the anecdotal evidence from my usage of the iPod and that of others I know who own iPods. This means that Apple made the right call by overcharging for the hardware and taking a hit on the price of the music as opposed to a strategy of subsidizing the hardware with the intent of making up the difference from the sale of music from the iTunes Music Store. Someone should send a memo to Jonathan Schwartz (who's suggested that car companies give away cars and make up the difference in subscription services) letting him know that this isn't always a brilliant strategy.

As others have pointed out, people have been buying CDs for about 20 years and only been using iTunes for the past 3 or so years. Thus it is to be expected that people have more music that they've ripped from CD than they got via the iTunes store. Once you throw in all the music have gotten over the years from file sharing networks like Napster, Kazaa & even just network shares in college dorms the percentage of music purchased from the iTunes Music Store on an iPod seems reasonable. It's also quite interesting that the article ends on the following note

Perhaps the only salient characteristic shared by all owners of portable music players was that they were more likely to buy more music - especially CDs.

"Digital music purchasing has not yet fundamentally changed the way in which digital music customers buy music," read the report.

Again, this also jibes with my experience with my iPod as well. I spend a lot more time listening to music from the same device now that I have my iPod. I listen to it while working out, while in the car and while working at my desk. Since I now spend more time listening to music from the same source as opposed to having to haul around CDs from place to place if I want to listen to the same music in my car and at my desk, I consume more music. The portable MP3 player is probably the best thing to happen to the music industry in decades.