Hmmm, that's not good. I got a pair of Klipsch S4s and it made a considerable difference, the sound quality is still not brilliant but it's acceptable.
Unfortunately it is the iPod that's weak here, if I do a direct comparison through my Bluetouch off the iPod or an SD card there is a massive difference in sound quality. So if it's the same with headphones and via the car kit it's the iPod that's at fault and nothing else. I've tried other iPods as well and it's the same issue.
I can't be bothered to get another car kit right now but if I get a car with a USB input then I'll probably get rid of the iPod and get a different music player.
mate what connection do you have for the ipod? aux or the main connection that plugs into the charge kit at bottom?
im sure the AUX connection gives you lesser sound quality