Well I don't use the MP3 player function much, I do the TTS sometimes in the car. To me it sounds like one of the follow;
1) Faulty headphones. Do you have another pair to try?
2) Perhaps the volume is too high for the headphones. When playing a MP3 you can adjust the volume in the software as well as adjust the volume on the supplied headphones. If the output volume is too loud from any device (ipod, stereo, mobile phone) the sound will distort when it hits the speakers/headphones.
See if that helps you at all.
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