I went to the market place and have zeroed in these three -
1. HTC Desire(16.4K)
2. Nokia C7(16.5k)
3. Motorola Defy(14.5k) - Sound quality is not that bad, but still it is strictly OK. Found a little signal leaking when connected with the headphone. Let me make it clear that quality is more than enough for a normal music listener.
One of the shopkeeper told me to wait a bit longer for the release of some Nokia X7.
Otherwise I have a small tilt towards the Desire.