Was it a real iPod or a knock off? If a real iPod, was he using the OEM USB cable or something different?
A real iPod (and I suspect most knock offs as well) use a Lithium Ion (Li-ion) or Lithium Polymer (LiPo) battery. This battery technology, while great for high drain applications or where size and/or weight are important, is a great fit. Unfortunately, it's somewhat sensitive to charge and discharge status as well as temperature, shorting, and in the case of early technology packs, impact.
A true iPod, and probably most of the clones, will incorporate a voltage cutoff and charge circuit internal to the player, so that should not be the problem unless there was a malfunction in that circuit. Also I don't think the MP3 players really became very popular before the Lithium batteries were no longer as much a threat from impacts.
My guess would be a short circuit occurred somewhere between the accessory charge port and the MP3 player. Is the accessory plug in tact enough that you can tell if the fuse is blown or not? If the fuse is blown, I'd suspect that much more that the problem was due to a short circuit in the cable. The short caused the fuse to blow, but the fully charged LiPo battery now had a large current draw on it, it tried as hard as it could to supply the current demand to the short which caused the cable and the battery to get extremely hot. The battery may have actually ignited but didn't burst in to flames since it was inside the player.
If you want to get a feel for how violent these batteries can ignite, surf around on YouTube for Lithium Battery Fire or similar search keywords. You'll probably be glad it wasn't worse. Unfortunately you'll have a hard time determining which part was the initial source of failure.
-Rod