AVR butterfly is a handy development board from Atmel. It comes with Atmega169V microcontroller and other handy peripherals like LCD indicator. So control and indication is ready, the MP3 decoding part has to be handled on other PCB.
For MP3 decoding there is a VS1001K chip used which has on-board DAC with sufficient power to drive headphones. Interesting thing is that this MP3 player is also capable to drive Nokia3310 LCD screen instead of butterfly original LCD. Player firmware enables to browse directories on SD card, control remotely via serial interface, indicate battery usage. You can find more info and download project files from sourceforge.