Not 100%. I'm definitely trying other iPods to check.
But how many chances are there that I happened to listen to two different EU iPods (see above), produced in different years, differend generations, that sound equally poor to me? I tried them for quite a while, and I could not tell one from the other.

Edit:
And, see, my friend did say he was not at all impressed with sound quality, but still he never thought of returning his iPod or think it was faulty. So, it must not sound that bad to him, after all.
So maybe it's just me.
Also, I pretty much agree with sein, above. I too noticed quality decreases when increasing volume. Now, in spite of the overall low volume, I have to correct my previous statement: some tracks do produce some distortion.