Sounds as good as my iPod Classic via my Ety ER-4P's or via either of my stereo/home theater systems. That said, there have been people posting with issues with the headphone jack.

Specs for the Droid (including microSD capacity) are available on Motorola's site.

 

I hook mine up to a speaker system and I like it...I have not had any issues w/ the headphone jack. Also, the 16GB comes with the phone in the box. Its not an added accessory.

 

The Port is as good as my 160 gb ipod classic.
I use BOSE over ear headphones- the ones they demo ipods with in the apple store.

 

There is no headphone port on the Droid. Only three contacts lined up to press against the 3.5mm jack when you insert it. It's a terrible setup. Imagine if a car manufacturer decided that instead of using a spark plug to ignite the engine, they would have two motors strike a piece of flint. That's pretty much the equivalent of this.

Certain "headphone jacks" will work fine while others will break after a month's use or so, usually involving cutting out in the left or right channel. There is also no equalizer on the Droid, but that might change.

 

I found that my Droid sounds better than my older nano iPod, I transferred all my music to it and am using it instead of the iPod.
There is nothing wrong with my headphone jack but I didn't want to chance it so just picked up some BT headphones (Moto M503's), I use it mostly at work and there would be a lot of plugging and unplugging throughout the day. It really is a nice set-up for me...sounds good, easier than two devices, good 'walk around' range...win/win.

 

I have been using the 3.5mm jack about 5 days a week, plugging and unplugging multple times per day, for about 6 months now. The sound quality is as good as any other mobile device I've used (although there haven't been many). And I have not had any hardware issues at all.

I have also read that people have had issues with the 3.5mm jack, where they would lose sound if the plug was wiggled around a little, or the jack itself was loose and moved around in the phone. I think these problems are pretty rare, just make sure to try the jack out after getting the phone and if there is a hardware problem, exchange it.

 

Some users have had trouble with the 3.5 jack, luckily I haven't though. I always have my Droid laying flat on a table OR snapped into the car mount before I plug anything in so it doesn't really wiggle that much.