I'd have to go along with the faulty ipod theory: I'm probably one of the few people on this forum who wears hearing aids (I'm waiting for the bluetooth hearing aids, so that I can connect to all my sound sources in silence).
Obviously I take the aids out to use in-ear phones, and mine are the Sony ones with three different ear pieces to ensure a snug fit, they retail for about 30 quid in the UK.
I have the volume setting in the settings menu at full, in case I'm in a loud environment, but, in general, I have the volume control at about 60%, and it's perfectly audible even with my reduced hearing, downstairs on a bus, which is quite noisy towards the back.
As for quality of sound, I'm still fairly picky about how my music sounds, even with my reduced sensitivity and would prefer a graphic equaliser, but find the "Rock" setting ample for music comparable to the Police.
What I do notice is that using the dock and the AV cord connected to my hifi, I have to turn the ipod up much higher than the other line sources.
I'm using a free program called Sharepod instead of itunes, which I found to be rather slow to load and to navigate,
I load up stuff that I haven't watched on the TV and take it to Wales to watch in my hotel room, using the AV lead, which has proven to be a very useful function.