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I was having a similar problem with my LG Blu, Sony HTR and Sony TV. I realized upscaling was turned on by default on all three devices. I turned it off on two of them and haven't had any further problems.

couple of obvious things I'm sure you've tried... 1. make sure the eq on the Ipod is set flat...there will be distortion if not 2. restore the Ipod to factory default in Itunes, reload it and start over from scratch...there may have been errors during sync