The MP3 Pillow has an iPod dock connector and apparently can hook directly up to your iPod. There is a speaker inside and the buttons actually work! How cool is that?
I remember having some kind of speaker pillow when I was a kid. It almost worked. It was actually a speaker that you stuck under your pillow.
In modern life, I've used really flat ear bud headphones from Radio Shack for listening to music (privately) while I fall asleep. That works 'pretty well'. (Also remember Willson's Law: Never buy anything with moving parts from Radio Shack. BTW, I'm thinking of extending Willson's Law to include Sony.)