I myself definately would not call the iPhone 3GS or 3G the best sounding MP3 player on the market, perhaps in the phone wise it might be, but again thats really hard to say. Would like to know really how it compares to that of the other phones such as those from Samsung, HTC, LG, Nokia etc. But comparing a iPhone 3G/3GS against others from Cowon, Sansa, Creative, HiFI Man and even Meizu is a total different ball game.
The typical Apple Fanboys who live in their Apple dream world and know sweet bugger all on Audiophile SQ or even top end SQ will argue and say that the iPhone or Ipod is the best sounding MP3 player on the market, simply because their too ignorant to try new products that have been releeased on the market.
Ohh an btw adding a good quality CMOY would be well worth it, plus pls dont expect to drive high end headphone (eg overhead ones) with a iPhone 3G/3GS the amplification would be far too gutless to power these high end headphones eg AKG K701, Beyer Dynamics, Senns etc. But for IEMs the iPhone 3GS is perfect, also not sure if it has a Vol cap on it as well.
My brother has the 16Gb 3GS and I will admit its a very nice phone indeed and the SQ is nice, though I would not say the best, I would even say my Fuze matches it easily if not better.