Are you using a standard stereo headphone (without a mic.), or one with a mic? Their plugs are a little different. They are both 3.5mm in diameter but a headphone with a mic. has four conductive sections on the plug ( mic, ground, left, and right). A standard stereo headphone plug only has three conductive sections (larger ground, left, and right).
The N7 is meant to accept a headphone with a mic. If you plug in a standard stereo headphone without a mic., you will short the mic connection to ground. This may or may not cause issues. I remember seeing my Epic 4g Touch act strange when I tried to use my computer's headphones. Standard Ipad/IPhone/IPod headset should work okay. Or any headset meant for a smartphone. For the N7, push hard when you plug it in.