Microsoft is surprisingly good at designing hardware and devices, and surprisingly bad at marketing them. Just like with Windows Phone, they were late to the party but acted like they already own the market. (I guess you just can't help yourself if you dominate the desktop OS market that much.) Both times they added unnecessary restrictions to the devices and set the pricing relatively high. You can do this if you're Apple and created the whole market and are generally known as a premium brand, but MS just isn't.
They somehow managed to take Nokia with their amazing hardware (look at Nokia N9, N900 and Maemo) and turn it into pure garbage (Microsoft Lumia series and their POS Windows Phone 10).
It was also huge compared to contemporary iPods. From what I remember, one of the few nice features were the sharing capabilities, where you could Zune songs you had bought over to friends, but those only worked Zune to Zune, so to actually avail that feature it had to first become popular enough that you would frequently meet people who also owned a Zune.
The Zune wasn’t a bad device. It was just too little too late. And the iPhone introduced less than a year later (and the obvious iPod touch that everyone knew was coming) meant that it was all over for the Zune before it even had a chance to get started.
The timing and the marketing was perhaps not as good as the product itself.