USENET and IRC continue to be the music-sharing centers of the Internet. By 2002, the ability of the two programs to share music becomes widespread. The RIAA begins to crack down on servers hosting music. Programmers release stand-alone music-sharing programs in response, etc. etc.
Basically, you push back the music-sharing phenomenon by a few years. The iPod, even if it is released as iOTL, isn't as successful for two reasons: At first, few people are aware of .mp3s. Then, by the time music sharing becomes widespread, flash memory has become cheap enough that there are plenty of competitors. Apple has a better user interface, but other companies have larger-capacity devices.