The sound quality is much better on the iPhone than any previous iPod incarnation. It is not, however, louder. I think the sound quality itself is amazing. It is the same wether you use the supplied earphones or with your own (and adapter). The sound quality itself is better.
There is a difference between quality and volume. You can crank the volume on any iPod in the USA much louder (you can not in Europe, where there are volume delimiters in place for MP3 players).