I've had my nexus one for about a week (didn't discover they got around to launching it for ATT until 3 weeks ago) and I'm very happy with the sound quality when playing music.
My headphones are nothing uber, Klipsch S4's, but music is very enjoyable. I'm an emotional music listener, and while I might know a thing or two about how music works, it's all about how it makes me FEEL while listening to it.
Godflesh is one of my favorite bands, most of their albums are very much focused on down-tuned guitars, so the raw visceral vibration is definately something you will miss if you like this music and your source can't put it out.
It actually sounds AMAZING, especially for guitars. There is a certain crunchiness in the sound that really brings out how guitar string sounds can be layered. It's extremely enjoyable and I was so happy when I discovered I liked the sound quality as much as I did.
I've also been listening to a lot of Blues and Electronic music lately, and it's equally satisfying.
Most people would be disappointed to learn the built in music player for android does not have an Equalizer, and I've only found one that does, (and not a very good one, since even though it has a very adjustable frequency band, it does not support presets or even saved eq configurations the last time I checked) but seriously I have never been listening to a song and thought, "this would sound better if I could tweak the EQ just a teeny little bit."
I put the headphones in, hit play, and it's a great listening experience.
Ipod style headphones that have the inline mic remotes work with the Nexus, so I naturally wish I could have bought the Klipsch S4i's, but they are not sold in retail stores here, only available online. I will buy them eventually, because having to pull the phone out of my pocket to change to the next track gets old very quickly.
So far the best Android music player I've found has been MixZing, and no, it does not have an equalizer, but for all of the great features it has, it's been wonderful. Being able to pause, see album art, and hit back or next even when the screen is locked, or via a homescreen widget has been very nice.
In short, music quality on a Nexus is a very enjoyable thing. Strangely enough, my only complaint about sound on this phone is the earpiece for a phone call really needs to be louder. This is a "sweet spot" style speaker, and even in the sweet spot it just doesn't get loud enough. The people I call though, think I'm on a land phone, the noise cancellation microphone is that good.