Okay, that's a good description. It sounds like one of the following:

- As mentioned before by someone else, if the device has any kind of EQ settings or automatic dynamic compression settings (I forget what the dynamic compression thingy is called on an iPod), check to see if any of those features have been altered.

- Make sure it's not a problem with the stereo headphone jack or cable. Your description of that quality problem sounds very much like what happens when wires or contacts between the left and right channels get crossed, and you get summed mono problems. One way to check for this is to play a song where you know there are significant stereo panning effects. If you can't hear the panning effects as expected, that's your problem. For instance, I use the studio version of the song "The Camera Eye" by Rush, because its instrumental introduction has synthesizer chords that are played alternately in each ear, and you can clearly hear the separation.

- Bring it to an apple store if you have one near where you live, and, using your reference headphones, listen to their demo units there at the store and see if they sound the same or if they are magically better. If the demo units sound better, you've definitely got a duff unit and get it exchanged.