RealNetworks and SanDisk have announced plans to release a portable music player system that will compete with Apple’s iTunes/iPod combination and Microsoft’s Zune.

The companies plan to release the Sansa Rhapsody, a portable music player based on SanDisk’s e200. The e200 series is priced starting at about $110 for a 2GB player with a color screen.

The Sansa Rhapsody will come pre-loaded with music and with software to connect to Real’s Rhapsody to Go subscription service.

Notably, the Sansa Rhapsody will use RealNetworks’ digital rights management technology, instead of Microsoft’s. This positions the Sandisk/Real solution as a direct competitor to both Microsoft and Apple.

The team faces an uphill battle, considering that Apple is firmly established, and Microsoft has admitted that it is willing to lose hundreds of millions of dollars on the Zune in order to get it into people’s pockets.

The RealNetworks/SanDisk collaboration is likely to compete on price. SanDisk can make MP3 players very cost-effectively because it is the world’s largest supplier of flash memory.