(FORTUNE Magazine) – IS THERE ANYPLACE ON THE planet hotter than an Apple store this holiday season? (Short answer: No. For the long answer, read on.) Chalk up another victory to Steve Jobs. They say hardware companies can't do retail, but Steve-O has no truck with conventional wisdom. Apple's stores have become zeitgeist beehives, great places for celeb sitings--everyone from Heidi Klum to Roger Ebert to Stevie Wonder; venues for musicians like Liz Phair and Nelly Furtado as well as for talks by Spike Lee and others; and even swinging singles scenes. But of course most of the action in the 99 stores (London's just opened in late November) is all about the iPod, the must-have gift this Xmas. In Apple's store in New York's SoHo, customers line up to purchase pink minis, the 40-gigabyte photo model, and the jet-black special U2 edition. If other retailers in the neighborhood are a tad jealous, forgive them. It's rare (even in SoHo) to find a store where there's always a line of customers queued up to buy a $300 or $400 item.

Just how many iPods will Apple sell this season? Depends on when you ask. Let's start with what's been previously booked. Apple tells me that it has sold six million iPods to date. (That's since the product was introduced in 2001.) Last quarter alone, the company moved two million units. As for this quarter, Merrill Lynch analyst Steven Milunovich estimated on Oct. 25 that Apple would sell 2.7 million iPods during the Christmas quarter. Two days later Milunovich upped the ante: "We increase our iPod unit expectation from 2.7 million to 3.0 million," he wrote. But that still wasn't enough. On Nov. 8, he wrote to clients again: "We increased our iPod units [sales estimate] from 3.0 million to 3.5 million." (If you do the math, that would be well over $1 billion in revenue!) So in a matter of 14 days, Milunovich felt compelled to jack up his number by 30%. Now that's what you call white-hot.

Some 51 million customers have trooped into Apple's stores since the first one opened in May 2001. And last year retail accounted for $1.2 billion in revenues for the company, producing some $40 million in profit. That's about 14.5% of both total company sales and net income. And in case you haven't noticed, Apple's stock has more than doubled this year.

Of course, at some point iPod sales are going to slow. But Apple is looking to stretch out the product's sweet spot as long as possible. Some believe Apple may next offer mini-minis--a flash-memory iPod that would hold only 60 songs but cost a bargain $150. Even more significant for the company: The iPod buzz factor may make for more Mac users. "Whereas the older generation still thinks it strange to own a Mac, the younger generation may consider Apple a core brand for their digital lifestyle," says Milunovich. (Ah, yes, the digital lifestyle.) Apple is never going to take on Dell, but for now it's hotter. And it will always be way cooler.

ANDY SERWER, editor at large of FORTUNE, can be reached at aserwer@fortunemail.com. Read him online in Street Life on fortune.com and watch him on CNN's American Morning and In the Money.