was also looking on WaveGain (CD -> wave -> WaveGain -> ALAC), but it looks like, there's fairly a lot of bit loss - which means WaveGain-ed ALAC files aren't lossless anymore.
If you can't EQ without distortion, that sounds like a bug in the iPod (assuming you are listening at reasonable levels).
You might be interested in rockbox down the road. The port for your player isn't all that stable yet, but is improving. Once its solid, there is a parametric EQ with precut, so its pretty simply to boost bass without clipping/distortion.
@OP: Try some different headphones...really.