I really like the idea. You may want to try a Premium subscription to MP3Tunes (http://www.mp3tunes.com/), as they have a feature similar to what you describe: Smart PlayMix (http://www.mp3tunes.com/locker/cb/smartplaymix). I'm not sure if it does lyrics, but it does use AMG (http://www.allmusic.com/)'s database to "Create a PlayMix based on the song you're listening to."
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