My understanding is that the droid is capable of good sound now, but soon to be GREAT sound! Im a semi audiophile so I like to get the best quality that I can. I was really into the DVD audio and Super Audio CD's when they were alive. Unfortunately, portability won over quality, so the MP3 did them out. Quality actually got worse for the sake of portability. The Iphone and the Droid both have docks so the signal of the music does not go through the DAC on your mobile device, it just sends the data to whatever your plugging into. This way you can use the DAC on your $10,000 stereo system to decode the music. This is why the media docks are great! You don't get the poor sound people are talking about. This is good, but its still an MP3 that is not lossless and still at 16 bit or less (DVD audio and Super audio CD's are at 24 bit). Looks like the quality of the DVD audio and Super audio might be coming back in a different format.
FLAC
FLAC - Free Lossless Audio Codec
Looks like it might come to the droid, so we can get up to 24 bit lossless music on our droids!
Moral of the story, if you want good music from the droid, you have to send the music through the USB port not the 3.5mm jack.
I know, this doesn't help people using headphones at all. Sorry.