Each of the relevant muscles has been wired up to the internal box (which is powered by electrical induction from a battery in the external one).

ECONOMIST: We can rebuild him. We have the technology

Wired News is claiming in an article that Microsoft's internal management have been wringing their hands anxiously at the droves of iPod users who work there their source estimates somewhere in the range of 64% of all MSFT employees own one (which might explain why it's been selling so well lately).

ENGADGET: Wired News and Scoble: Point/counterpoint on iPods at Microsoft