Sounds like the SP Underwear Gnomes have struck Toshiba

Chris: I believe there's a Far Side cartoon that has your missing step 2 in it. "Then a miracle happens."

Design by commitee. No one person involved with the development in this product could be happy.

Step 1: Produce content playback devices with either no content or no playback. Get anything people actually want removed from the marketplace.
Step 2: ???
Step 3: Profit.

The exemption hasn't done much good in the past. If the rights-holder chooses to claim that your exemption is related to making unlawful copies, in addition to ensuring compatibility (say, a tool that lets you watch DVDs from Region 1 in Region 2), your exemption goes away.

The encryption system keeps you from using your device to make copies of the music stored on it. Circumventing it is a DMCA violation.

The DMCA has an exemption for reverse-engineering for compatibility.

Besides, it's not even clear the DMCA applies, as this encryption system doesn't seem to protect copyright. You can put any kind of song onto the gadget, right? It's not like the encryption will keep you from being able to play or duplicate copyrighted songs. So where's the copyright protection that would bring the DMCA into play?