Argh. (Slightly unrelated to the iPOD device itself) but I generally hate the default equalizer settings for any player. If the song isn't 'encrypted' bass-crazily (unlike some R&B songs), I set bass to high, midrange to low and treble to high (attachment). I generally never have the midrange section high or the treble section low (or both together).. cause then it sounds like an old radio. I find that tuning the equilizer like this can really improve the quality of the audio experience.. the more crap the player, the higher I tend to keep the treble and bass, and the lower I tend to keep the midrange section.
If you have crap headphones, or just the normal earphones.. then definitely keep the bass down to average and the treble slightly lower.. or else it will distort things.
If there's an iPOD out there with a custom equilizer function, I'd get it right now.