I don't think it was Firewire that kept it as a niche product. It was that iTunes wasn't initially available on Windows machines, and Macs were still quite rare.
I had a G3 iMac (Graphite) at the time the iPod came out. So I got one. Actually, I got three: the first died after a day, the second was DOA, but the third kept chugging away for about 3 years until the battery died and it was only usable when plugged in.
It's funny to remember how unusual the iPod was. People on the tube in London, which isn't known for conversation amongst strangers, would ask me what it was. Tiny, about the size of a cassette case, with that that amazing white face and silver case. It was like something from the future.
They were linked, though: it was unusual to have Firewire on a PC, so even if iTunes had had Windows support at the time I don't know that it would have made much difference. It was the combination of USB and Windows support that made the difference.
Said elsewhere in this thread, but firewire/IEEE1394 wasn't hard to find in a PC/laptop, it was Windows support at all for the iPod that changed things. Once Apple shipped the Windows version of iTunes they were off and running.
I remember at the time many of laptops that had a IEEEE1394 port had the small size one, not the full-size one that the iPod cable used. Also most desktops didn't have it onboard due to royalty fees so you needed to buy a PCI card. Not an insurmountable obstacle, but enough that you had to really want one to look past that.
When iTunes for Windows became available they had already launched the 3rd generation iPod which allowed for syncing over USB unlike the prior two generations. Firewire was pretty rare on PCs in those days too. Had they stuck with firewire only I don't think it would have taken off. Would people have bought and installed a firewire card for it?
I think Firewire was a smart choice when launching to Mac users first, since USB1 was so slow, USB2 was still very new, and all new Macs had Firewire ports. That said, opening the door to Windows later on was absolutely the key to the popularity explosion, but by that time many more Windows machines also had USB2 ports for fast syncing.
There were a number of 'media' laptops that had "i.Link" ports (advertised that way by Sony), but you still had to buy adapter cables for it. It was a little bit of a mess but you could make it work.
And everyone agreed. If you look at the sales graph for the ipod it is basically a trickle until it suddenly explodes upwards.
Why the explosion? USB adaptor connection allowong it to be used on normal Windows machines.