It's amazing how many of the same ideas get thought up by different people!
I was thinking about this myself, but not only display lyrics, but to have them scroll down the LCD, synchronized to the music.
The only way I can think of how to approach this problem is to write a "composer" program which would allow you to enter all the lyrics to a given song, and then present you with a tape recorder type interface which would allow you to play, rewind, etc. an MP3 file, and then have it be able to mark where certain phrases started and stopped in the playback of the file.
Then when the file was played back with a plugin or custom MP3 player, the time data would be read and the appropriate line(s) would be displayed as they were being sung.
The lyrics and time marker info could be stored at the end of the MP3 file, after the ID3 tag, or in a seperate file with some sort of linking such as an .ini file with the MP3 and lyric files specified in it, or naming them the same with different extensions (.mp3 and .lyr, for example.)
Let me know if you are interested in this; maybe we could collaborate on this and make a plugin or standalone player supporting it.
--Jason
http://jump.to/m2pc