Phillip Torrone over at Make Magazine is in the process of turning an iPod Nano into an alarm clock.
I've cannibalized a set of old Apple pro speakers, an extra iPod dock and an iPod speaker accessory meant for the iPod Shuffle. Right now it all works, it gets power and sounds out - next up is to make a cool looking clear enclosure and mount it on the wall, or hang it.
He's not quite finished, but it seems to work and he's got some good pictures of his work Flickred.
DIY iPod nano alarm clock [Make]