According to a report at The Inquirer an Atlanta airport worker was a little surprised to discover, upon looking down to see where the smell of burning was coming from, that it was him.

Well, it was his trousers to be precise.

Apparently the chap, one Danny Williams, had an 18 month old iPod Nano and a piece of glossy paper in his pocket at the time. As well as flames that were fierce enough to be licking around his chest. The iPod, of course, gets its power from a Lithium Ion battery which raises suspicions of another hot battery problem about to hit the consumer.

The local news station took up the story and sent images of the burned out iPod, and one assumes the flaming pants, to Apple which has yet to make an official comment. Williams, however, reports that Apple wants the iPod back to investigate further and has promised to issue a replacement.

I should think so, along with his burned out pants.

well, as it is out of warranty they have no contractual (and quite likely no legal) obligation to replace it...
It does of course make for good damage control given the negative press they're sure to get over the incident (which isn't in any case shown to have been caused by a design flaw or other malfunction in the device itself that Apple could have prevented).
If the guy had it in his pocket, and turned on for hours at a time (his entire shift), probably in some sort of protective cover as well, it's entirely possible for electronics (and especially batteries) to get rather hot.
Do that for 18 months, every day (or almost) and you're creating an accident waiting to happen.

It could really have been a number of things. Like it may not have been the ipod that caused the fire but something in his working enviroment that just happend to be in the same location or it could have been that he was using an aftermarket battery and not an apple issued one.

I would expect if it were a battery issue with the Nano that we would have heard of more cases of pants aflame by now, considering this one was 18 months old according to the guy involved. It is possible it is age related, so we should keep an open mind.

Hopefully he will have returned the device to Apple now so it can investigate.

It could just have been a couple of small things rubbing together in his pocket causing a spark I guess :)