There are plenty of small handheld solid-state recorders out there now for capturing music with a built-in microphone. The latest offering is from Line 6 called Backtrack and BackTrack + Mic. You could read the little about the specs here (announced today.) Basically BackTrack is for connecting to your electric guitar or any guitar with line out (1/4 inch input) and the + Mic has built-in mic. You could record WAV files up to 12 hours and then dump those over to the computer using USB.
The key to being successful in this market is to make a digital recorder that is easy to take with you, use and then easy to dump the contents. I got a hand-held Olympics recorder three years ago, the drawback is with this one that it records on the high end WMA files so I had to install additional QuickTime codecs to get this to work with my Macintosh studio setup. I also hope that the built-in mics are better than the batch a few years ago.
One market for this is to always capture ideas you have. Let’s say you get a new guitar and you get tons of ideas and you don’t have a capturing happening — days later you realize that you principally made three new songs and they are now forgotten. I know this from experience.
And then you just need to make a habit to bring with you such a device everywhere. For example, if you attend a jam or play with a band, it’s a quick way to get some kind of live recording. Doing recordings via mixer board is always better. If you have a dedicated mixer or mixer person, you should always dump the contents from line out to a recorder (DAT or something else.) Zappa captured all his live shows and there’s plenty of material to go through for a couple of centuries.
It also seems that today’s audience has a high tolerance for lesser quality live recordings so you could always give them out as PR material or use it in similar cases.
Anyway, it’s again one of those golden rules: record as much as possible, document it, and later decide if you want to release it or not.