My nano works fine so far, its awesome, I got it last night, and have already used it 5 hours. So far no defects.
And about yours, just send it in, i know it may take a while, but it is probably the only thing you can do.
I have the sony fontopia earbuds, those things are awesome, they dotn fall out of my ear, and they shake from teh bass. They also dont distort, and they are about 40 to 50 bucks.