The point is that the old Ipod headphone preamps didnt't have enough juice to power most headphones properly. What is the hardest frequency to reproduce? The bass. So, even with headphones and the eq turned up, the bass didn't sound as full and punchy as it should have.
This was probably the worst flaw sound quality wise. The AAC or MP3 encoding at 128K are virtually indistinguishable from CDs for most listeners, but most listeners can hear the lack of bass. Its like something is missing.