It's not so much the sound quality is crap, it is that the output is LOUD, very loud, combined with shoddy EQ's. Example, if you use Winamp, lots of MP3 have the same effect, the sound breaks up. You can get a decoder called Mad
http://www.mars.org/home/rob/proj/mpeg/mad-plugin/ in the settings of that you can enable Automatic Clipping, and that stops that Bass buzz. My Zen Micro had a Volume Normalize on it (forget the name of the setting) and that did the same thing, if you left that off, the sound quality was abysmal, it had to be on. As the X20 doesn't have that you will have to do it yourself when you rip your CD's. Use Normalization in whatever ripping software you use. Audiograbber and EAC both have it. Set it to 95% or lower and you will find the sound calms down a lot. You can then crank the volume without it breaking up on Bass. Don't send it back, the replacement will have the same issue. It's not a fault, just that the output of the X20 is powerful.
Maybe it is something they should look into with the next Firmware, to attenuate the sound. I assume it is some kind of AGC that is needed on the output?
Note: I have no idea if I am right in what I am saying, but the .WAV normalization worked, and so i am just summising this is the problem.
Compared the sound of the X20 to my Zen Micro - turns out the Disco EQ I used to use sounds exactly the same as not using one on the X20 ie Normal. Seems the way to go is get some really good Earphones, leave the EQ off and let the phones do all the work.