Figured it out. I plugged a 1/8th plug (plug only, no cord attached), took a pair of headphones and attached alligator clips to all three pins. 1st i attached the left channel wire, then the right channel wire, then HEY!! before i attached the ground, there was my mystery sound!! For giggles I attached the ground anyway, and the sound improved a TINY bit but was definately the crap sound I'd been experiencing. I peeked down into the jack and all the contacts were ok, so I popped the iPod open and examined the headphone circuit board. Found two SMDs that were discolored and had cracks and pockmarks. TADA!!!! As someone else had pointed out, it must be impedance related. The high impedance devices draw less current through the circuit and sound ok, but the low impedance headphones must stress the damaged components enough to cause malfunction.
Long story short, I've got a new heaphone circuit coming to the tune of $32 after shipping.