In a few ways, yes, they are missing out. But, perhaps it is not because music is "better" on the speakers - though my gut tells me it is.

I think they are also missing out on the having to negotiate and communicate with the other people in their living space (or adjacent to their living space!), the car, wherever. If I wanted to listen to music when I was growing up, I had to deal with my sibling(s) and my parents - homework, phone conversations, other music all had to be negotiated; I eventually got headphones, but I still preferred being able to hear it fill the room instead of just filling my head. Cars were especially prone to negotiation because we all had different preferences and there were no headphones (this was shortly before Walkman's became popular and noone thought of carrying their own little cassette player with cheap little earphones.

I think that the real decrease in music quality, though, is not the headphones, but the way music has become so compressed at the production level.

But, perhaps it is a natural evolution in how we listen to music, though. Before quality home stereos, you had to go to the symphony hall or to a jazz club or ballroom to listen to music - it was a communal experience. Then, it became a home experience. Then, it became a car experience. Then, a computer speaker experience. Now, it has become a in your ear experience. (What next? Piped directly into your brain? I already hear voices... ;-) ) Heck, I haven't even bothered to put up "real" speakers in my new house (though pre-wired), and I listen to music day and night.

Thanks for the question, andy. It got me thinking first thing in the a.m. - always a good thing.