I do not use EQ at all. The only possible EQ scenario I'd consider valid if there was a known deficiency in the recording, which cannot be corrected otherwise. Still, it's a stopgap measure and in those scenarios I simply wait until a remastered version becomes available. If you need to EQ for any other reason, there may be a deficiency in the source, interconnects or the recording itself which leads right back to the first point.
I'd need to know more of why do you think you need EQ and what settings are best (frequencies and correction in dB) to your ears. What is the source material, bitrate, etc. I'm assuming your JH16 Pros have a perfect fit, because if they don't, you may very well experience substandard SQ, no EQ will fix. You may want to head over to the JH16 Pro First Impressions thread to do some of those tests they recommend to validate fit.
I'm not sure if it is normal or not for EQ to affect the LO, but it is dependent on the design. Personally, I think it is preferable to have the option available to external amps as well as a function of the DAP itself.
Ok here is the custom eq setting I use:
60 Hz = 8
300 Hz = 6
1 kHz = 3
3 kHz = 6
6 kHz = 8
So it is a V-Shape and I believe there lies the problem: It sounds more forward to me but it is coloring the sound. I just had another listen to some of the songs I felt, sounded better with the custom EQ (some Rammstein songs, the "One Hour by the Concrete Lake" from Pain of Salvation, "Ghost Reveries" from Opeth) and I actually liked them better with the EQ off now. At first they seemed more dull, which of course makes perfect sense given the bass and treble boost, but now I feel like it sounds more airy and more controlled.
And you are right about the recording. I have a (once believed to be great) analog recording from Primordial called "To the Nameless Dead", which sounded so wrong with the mids just blowing everything without the EQ. Comparing it to my Bose Home system (yeah I know...that shouldn't be considered reference at all ;-) ) and to out Harmon/Kardon Car audio system I believe that the Hifiman without EQ renders the album more closely to the original than the iPod (and the Hifiman WITH EQ on that extend).
Bottom line: The recording sucks ;-)
I also already wrote a response on the JH 16 Pro appreciation threat a couple of weeks ago essentially stating that I was not very impressed when I first heard them and the fit issue came into discussion. I did all the test accordingly and the fit seems to be perfect. Also I hear the same issues when using my old Triple.Fi 10 Pro's with/o Comply Eartips on the Hifiman, ergo I believe it is safe to rule out any fit issue.
Though I guess I have to apologize for my prior comment on the JH 16 Pro. Besides all the hyping (which is still think is way to much) I believe they sound much better then I initially though they do. In a couple of weeks, when I think I have grown fully accustomed to them, I will switch back to my Triple.Fi's to actually here the difference. I had a similar experience once, switching between a normal grade Hi-MD Player and one of the top-tier Sony's with digital amplifier and I was not blown immediately, but when I switched back to compare both a couple of weeks later, I could actually here a huge difference, as your ears/brain have grown accustomed to all the subtle details added by the better Sony Hi-MD player. I believe that something similar will happen with the JH 16 Pro and the Hifiman vs. iPod.
Concerning the Line-Out: Why I mentioned that point is, that quite a while ago I remember people commenting on the LOD option from the iPods in a negative sense because they felt it was not a "true" Line-Out because the EQ would still work on that signal path as well.
So I really wonder what is true now and if someone has the technical knowledge of how a Line-Out signal should work.