As expected, Apple has taken the wraps off its new photo-capable color iPod, alongside a sleek black U2 Special Edition iPod. U2's Bono and Edge joined Apple CEO Steve Jobs to herald in the iPods at a gala event in San Jose.

iPod Photo takes the market-leading device beyond the realm of music and into digital imagery. Available in 40GB and 60GB capacities, the new member to the iPod family features a 65,536-color screen offering a 220x176-pixel resolution. Users scroll through pictures just like songs, browsing 25 thumbnails at a time, and can also view album art while music is playing.

For sharing, Apple has included video-out capabilities for connecting the iPod Photo to a television or projector. Users can create slideshows accompanied by music, and the output automatically adjusts for different television display formats.

"With the original iPod, Apple identified the digital media type with highest consumer interest: Music. The iPod Photo catches another digital media type, the digital image, just as its popularity is starting to peak," Jupiter Research senior analyst Joe Wilcox told BetaNews. "In the U.S., more than half of households now have a digital camera."

But the added functionality comes at a price; the 40GB iPod Photo retails for $499 USD, while the 60GB model is priced at $599 USD. The higher cost does bring other perks, including 15 hours of battery life - more than the standard fourth-generation iPods.

However, users wishing to copy pictures to an iPod directly from a digital camera will need a third-party adapter, such as Belkin's Media Reader.

"I suspect Apple will use the product to test how viable iPod would be as a bigger platform around which to deliver other digital media products and services," said Jupiter's Wilcox. "Already, there is a huge aftermarket of iPod add-on hardware and software, which is the hallmark of a new platform in the making."

Apple has opted to use iTunes for copying photos to the iPod, as the software is available for both Mac and Windows. To this end, iTunes 4.7 has been released with the necessary photo syncing support. The update includes the ability to read photo albums from iPhoto on Mac OS, and Adobe Album 2.0 or Adobe Elements 3.0 on Windows.

For iPod users not ready for the photo plunge, Apple has unveiled a special edition U2-branded iPod that comes in black with a red Click Wheel. Autographs from U2 band members are engraved on the back.

Instead of including all U2 albums on the iPod as previously rumored, Apple offers buyers a $50 coupon towards "The Complete U2," a digital boxed-set containing 400 songs and 25 rare and unreleased tracks. The U2 iPods sells for $349 USD - a $50 premium over the standard white edition.