Hello,
If you use the line output i think the sound quality is quite good and can be compared to other "low" cost MP3 player.
The internal speaker can practically not be used to play music, and you can not judge the quality from that.
The hardware has a dedicated audio dac, almost like your soundcard in the PC and this codec will set the quality since every thing is digital until this DAC, you can read the datashet for this chip.
There can be some problems in playing 320kbit MP3's due to the speed of the uC or the optimization of the code.
Kasper
