Some do (my parents for example), and I suspect even among those who recognise different brands, there's decreasing awareness of what MP3 is. It's not uncommon for a brand to become synonomous over time - Walkman was an earlier example in this thread, but others include Liquid Paper, Roller Blades, and even Biros. Dangerous territory, because in the instance where it does become generic your trademark protection disappears (see also the battle Xerox continues to wage in that regard).

Many of my friends do; also many older more "technically-challenged" people I know do.

I don't appreciate the downvote.