A US government agency, the Department of Energy, built a modified iPod with help from Apple in 2005. That reveals a former Apple employee. It is unknown what the iPod did.
Because the Department of Energy is about nuclear weapons and nuclear energy, the former employee suspects that it is a radiation meter. Comments to the blog post point out that the iPod case would absorb a lot of the radiation, so that application is not obvious. Some people who respond suspect that it is a device that can map WiFi networks, for example.
Two employees of a private company employed by the department made the modified iPod. Apple helped by providing access to code from the iPod’s operating system on a DVD that was not allowed out of the building. Then the Apple employee and the two employees of the company employed by the government agency together built a setting deep in the menu to toggle the feature on and off.
The recorded data ended up on a hidden partition of the hard drive and even when connected to a PC or Mac it was not possible to see that it was not a normal iPod. According to the former Apple employee, only four people within Apple knew about the project. Later that was no longer possible: the used iPod of the fifth generation with 60GB hard disk was the last without checking whether the operating system had been adjusted. The full story is in a blog post on TidBITS.