A few clarifications maybe:
Some of the opinions presented hitherto are purely opinions - they have no application to reality in terms of how the iPod Classic measures when in use.
- With the Bose Quietcomfort 3, you're hearing music at better quality than many Bose-bashing owners of other headphones.
- The Classic offers the best balance of quality and stable sound playback characteristics out of all the HDD iPods to date, the 5G included.
The problem is your material, and this goes for anyone.
Clipping and distortion is a problem if your tracks are recorded at varying volumes, especially tracks which have been further processed to high volume levels by whatever ripping software the original torrent poster used. This is the other problem with torrents. You have no control over not just at what quality the material was recorded regardless of the bitrate, you have no control over how it was recorded.
As several people have said, rip your own using iTunes for better results. You could also use MP3 gain tools to reduce the effective volume of the tracks in order to eliminate the clipping.
The other fact: Any iPod has crap EQ. Starting with the Classic it got better (only took, what, 4 years?), but it still is the suck. The distortion is a component of the EQ as many presets overdrive the sound to clipping, especially with 'hot' material. Don't use it. If you want to use EQ with your music, consider alternative players.