Hey guys, i think i solved this! (Mac OSX)
1) Go to Music -> iTunes
2) Save "Album Artwork", "iTunes Library.lib", "iTunes Library Extras.itdb", "iTunes Media" folder and "iTunes Music Library.xml". Those files and folders are important if you want to save your music and media.
3) Remove iTunes with AppCleaner application which you can get here http://www.freemacsoft.net/AppCleaner/ (All those files and folders should be replaced from original place, if they happen to be checked in checkbox in AppCleaner-uncheck them)
4) Install iTunes back and put all the files back to where they should be.
I have this problem aswell, updated from 10.01 (which was fine) to 10.1 and the music quality is horrific to the point I can no longer use iTunes to listen to it, it's all distorted and muffled, I've done a clean install of itunes and I've updated my sound drivers so is obviously an iTunes problem, I presume apple won't be interested and fix this though as they have no way to report bugs on the support site and their quality control and customer service has been going downhill over the years.
Try Airfoil...the sound is another world compared to iTunes...on my system anyway. Clearer, richer, more dynamic etc. You open it up and it plays from whatever source you choose including iTunes. I have version 3.5.4 which is free. There is a version 4 now which is $25 but not sure what you get for that.
Turn the equaliser off............
I had same problem thought it was distorted CD at first sent a new CD back replacement the same. Tried CD in seperate HI FI all ok. Swapped out CD drive still the same, swapped audio card still the same.
Played itunes ripped tracks via SONOS all perfect !
Played CD via windows media player perfect !
Checked all itunes settings, switched of crossfade, volume equalizer etc no better !
Opened equalizer from view menu and unticked equalizer.........
Normal service resumed !!!! bass much tighter, distortion reduced, not as good as direct or windows media player but better.
Lets hope apple resolve it in next release