I am trying to do this with a single board 386 with the lp3 music.
The major problem with using non-pc hardware is interfacing to a large storage medium. There have been some people who have interfaced an IDE harddrive to a microcontroler. That and the fact that you will have to use some sort of dedicated hardware decoding scheme for every thing to work.
In general it is easyer to put together a player from standard parts and software than designing hardware and hand tuning assembly code.
Like I said I am trying to implment a car player on minumal hardware with hardware decoding. I will be using on of the embedded linux distros for the os with the lp3 player/data manager and driver.
I am not saying that this cannot be done but there is a large knowledge factor here. Use what you know and implement it.