Here's my setup on my Sharp Zaurus C3000 for listening to music with MPD.

Add the following line to /etc/ipaq-sleep.conf to have your Zaurus not sleep while playing music:

IRQ = 25

To have your zaurus not suspend when closing the lid while music is playing, install mpc and edit /etc/zaurusd/hinge-close.d/99-suspend to read:

#!/bin/sh
if ! mpc | grep -q playing; then
	apm -s
fi

Here's my /etc/mpd.conf, for reference:

music_directory         "/music"
playlist_directory      "/media/hdd/Documents/playlists"
log_file                "/etc/mpd/mpd.log"
error_file              "/etc/mpd/mpd.error"
db_file 	        "/etc/mpd/mpd.db"
state_file              "/etc/mpd/mpdstate"
port			"6600"

I then have symlinks in /music for various other directories, such as:

/media/hdd/Documents/Music_Files
/media/card/music