Google changed the way it handles streaming audio in Android 2.2 Froyo. Theoretically, the new Stagefright media framework is designed to let you stream high quality codecs over a WiFi connection than it uses when you’re connected to a 2G or 3G network. This sort of makes sense, since you might not want your phone to eat as much bandwidth when you’re using mobile broadband service.
But users have noticed that streaming audio quality sounds much worse over a 2G or 3G connection after upgrading to Android 2.2. You can really tell the difference when you plug in a set of headphones.
Anyway, long story short the good news is that Google is aware of the problem and the company is working on a fix which should be available soon. the bad news is now that you’re aware of the problem, you’re going to notice it a lot more every time you plug a set of headphones into your phone.