mpd
I've decided on mpd as the demon which will run on the slug. It uses MAD, and the only other dependancy is libao.
It listens on a socket for control messages, and there's a range of front-ends available. Writing one to control it from a LCD/keypad shouldn't be a problem. The bargraphs on my LCD fit nicely with my need for a progress bar and volume slider. 
BTW, mpd includes a copy of libmad/libid3tag, so you don't need to download it separately if you don't want to.
