Those were very common back in the '90's, particularly in the cubicle environment that was prevalent then.
It kept people from walking by and seeing that you were really playing solitaire instead of working.
According to this: https://everymac.com/systems/apple/ipod/specs/ipod.html
The 1st gen iPod requires OS 9.2.1 or later.
If you reformat it using another system your TAM may see it, I don't know. The Sonnet card may be an issue too.
Way back around 1997-8 in the the heady days of the Apple Clone Wars when I was at Motorola we had one of those PowerStack systems running NT in our office. Our admin had it set up as a server since everyone else in the office was still using Macs.
I don't know what became of that PowerStack...
The 128K-512K Macs were realistically expensive tech demos. They lacked the memory and applications to be truly useful.
Imho, the Plus was the first truly useful Mac.
But you're right, the small screen and lack of color hurt the Mac.
As far a low-end Mac I think it really took until ~1990 or so...