I can't speak with much authority on the iHP-120, but I do have a 3G ipod and an iRiver SlimX.
From my own tests, the SlimX does have better audio output--both louder and more accurate, which I believe are both intertwined. The ipod's amp is actually quite good, but it starts showing distortion at about 75% volume or so, which is where I put it, whereas I usually listen to the SlimX at around 55%. No, I haven't properly ABX'd them or measured frequency response, but I did subject them to my normal test whenever I enter a new editing room or studio: a good healthy listen of
The Fragile, just about the most sonically detailed digitally recorded album I know of. My reference at home is a pair of
Alesis M1's, so I have a pretty good idea of what all the details are supposed to sound like. iPod skimps a bit more on the very low lows and seems a tad less detailed in the midrange.
But it must be noted that the ipod's physical interface is, in the most literal sense allowable, a dream, and that it has an amazing "play me!" feel, as contrasted to the iRiver's "fiddle with me!" This may sound like a stupid thing to consider, but think of how much time you're going to spend interacting with the interface to whatever player you buy. "Fiddle" versus "play" is an important consideration--as is the Darth Vader vs. Luke Skywaker factor. I personally went with the ipod's "play!" feeling and I love the scroll wheel on it, it's intuitive and responsive. Similarly, the navigation on the ipod is much simplier and easier than the SlimX, and I really like how it prefers my ID3 info over the file names.
The computer interface isn't too bad; I completely ditched iTunes and use foo_pod exclusively, which can automatically transcode all of my FLAC or OGG or MPC files before sending them to the ipod (if any of you foo_pod people are reading this, you rock!). I did, however, have a world of trouble trying to connect it to USB2, and settled on buying a $35 firewire card, in which it worked perfectly. This is supposedly not as much a problem with the 4G. Also, the ability of foo_pod to line up ReplayGain data with Soundcheck is, IMHO, one of the greatest features ever devised for music playback.
I do have to confess one thing: I got a brand new 3G 40gig ipod with dock, remote, & case at a fantastic price of $300. Compare that to the lowest current iHP-120 price of $270. If I had to do it now, with current prices, I'd probably buy the iHP-120. One thing to keep in mind are the accessories--a big factor in my buying the ipod was Contour Design's Showcase case for the ipod, which is wonderful, form-fitting and durable and accessable. I don't know what the iHP comes with, or what's available, but make sure you see the real costs of the accessories you might buy with it.
I know most people say battery life is a big concern, and I do too, but here's one accessory thing to keep in mind: for my flight this weekend I'll have my 3G iPod with it's paltry 8-hours-under-ideal-conditions internal battery, but I'll also have along the $30 belkin backup battery port (I was going to make one myself for about $5, but was too lazy) with eight AA 2100mAh NiMH batteries. Combined, that's about 30 hours of battery life under my normal use of constant shuffling of large files, and it really isn't that bulky or heavy. Does the iHP have that ability? I know the SlimX has a little AA addition.
I haven't dropped the iPod yet, but I dropped the SlimX a lot and it kept going.
So, FWIW, that's my experience. iRiver does produce quality products, but make sure you've looked for what you really want in a player. If you want radio, recording, and you think internal battery life is very important, by all means get the iRiver, it looks better than anything else out there on the market. For me, the iPod's wonderful interface cinched the deal, as I am routinely scrolling through over 200 artists.