what theme are you planning to make your shop? I wouldn't go with anything loud or with cuss words... which is an obvious answer. I'd go with some type of soft classical from any era or part of the world, just depending on what the theme is. Even if you don't go with classical I'd do something that is soft and not hard on the ears. If you want people to linger longer, slower music, if you want people in and out and to feel in a rush, faster music.
A friend gave me a CD of a contemporary jazz group named Lance Koonah Innerworkings. I played it one morning and it actually went great with my first cup of coffee. The website my friend got it from is called www.cdbaby.com. It's worth checking out!
Good questions on the music. If you download, you can run a cable from your PC headphone output to your stereo component input. iPod has cool factor, but expense and you lose your buddy during business hours. PC is likely already there and waiting for a multitasking assignment.
As for royalties, I am wondering about that as well. I know that there are commercial music services. Yahoo and Napster offer music, but can it be played in a commercial environment? Somehow I feel like it can, as many establishments play broadcast radio.
Do yourself a favor... utilize a professional music service which covers your music licensing. If you choose to play music on your ipod you will need to pay the appropriate BMI & ASCAP licensing fees. I enjoy the programming on Sirius XM. You can sign up for a 30 day trial (via internet) to license to their programming. They have a couple of stations that may work for the mood your trying to establish.