The design is based around the AVR Butterfly from Atmel. The use of this module greatly simplifies the hardware design and constrution and packs plenty of punch for $19.99 USD. The remaining hardware can be easily placed on a single sided PCB ($10-$20). The MP3 decoding is handled by a VS1001K decoder chip from VLSI Solution Oy ($20). This chip also has an onboard DAC with enough power to drive headphones, simplifying the board design even further.
AVR butterfly Mp3: a diy mp3 player: [Link]
you should also check the DIY Mp3 player article i wrote some time ago.