Here's my take on the PR-D5: yes, AM audio is a bit muffled/muddy, but it's a trade-off. AM sensitivity and selectivity are excellent. FM sounds great and FM sensitivity and selectivity are also excellent. Of course, FM reception reverts to mono on weaker/more distant signals; sometimes you have to play with the whip antenna (direction and shortening/lengthening) to get weak stations.
I think the PR-D5 is the best AM/FM portable for the price currently available. I guess you'd have to try one to determine if the AM sound is bothersome to you. I haven't tried mine as an Ipod speaker yet; I usually listen to mp3s through earbuds. I've had it about a year and no problems yet.