Using the default headphones that came with my iPod Touch 2G I did not really notice mich of a difference between the Music EQ settings. My left headphone stopped working recently though so I picked up a much better pair of headphones, and now I notice a difference.
Most of my music on my iPod is Country Music. Unfortunately there is no default setting on the iPod Touch for country music, so I spent quite a bit of time experimenting with the EQ to find the best setting.
Country Music comes in many different flavours from traditional country, to rocking country to country pop. Depending on what style of country music you subscribe to will affect your choice of EQ setting. Most of music leans toward traditional country music and I found that the best EQ setting for me was accoustic.
Usually I find the best setting for country music to be rock, it was the case on my last MP3 player, an iRiver, but that setting on my iPod Touch was too muffled for my liking.
Your own preference may vary, but try the accoustic setting and see how you go, then let us know your own results below in the comments. I’m curious to know if my results are typical or not.