I've found the SQ from the 3GS headphone out to be substandard on both phones that I've had (first one was stolen). I tried the FiiO E1 amp and it did help the SQ quite a bit, but it's just another thing in my pocket (even if shortened), so I unloaded it. I wouldn't waste $ on a 'real' amp for the iPhone as it would no longer be portable.
At the moment, I carry the iPhone as a phone/internet device and use a Sansa Clip+ for listening to tunes. I find the Clip+ headphone out to be far more to my liking with my headphones (RE0, KSC75). The Clip+ EQ helps to correct for some (but not all) inadequacies of these headphones, particularly for the KSC. The EQ on the iPhone is useless.
I'm thinking about canceling my ATT contract and selling the 3GS. And then get another, smaller phone for calls/texting and stick with the Clip for music. Having the internet in my pocket isn't as useful as I thought it would be anyway...
Edited by nycbone - 8/4/10 at 12:05pm