A slight bit of noise reduction thru in-ear headphones isn't that bad. In some ways it almost feels safer, as horns and such will be less likely to startle you. That said, in most states you will be in the wrong if you're wearing headphones, and do expect insurance companies to take that into account if you ever get in a collision and is trying to make you somehow at fault.
http://www.amazon.com/MP3-Bike-Stere.../dp/B003DR12C2
http://www.amazon.com/SoundShell-Bic.../dp/B00439CQKQ
http://www.amazon.com/iLuv-iEA15BLK-.../dp/B002RL9WDQ
Wire-fraying issues reported in inline remote reviews are negligible on bikes since it'll usually sit in place (connect between ipod and speakers, keep zipper open a lil' bit and stick out the remote). Good sound quality for its size, lived through a monsoon in my area so it must be fairly hardy as well. Weight wise both these products are similar, the bike bag looks slightly sillier but is also much more useful. If you're not an audiophile by any means ("ipod earbuds are great!" "skullcandies are awesome!" "Sony anything!" ugh...), you'll be amazed by what this can put out. If you do care about audio quality, you should be caring in the comfort of your sound-treated listening room w/ custom speakers.
Well, there it is, no need to reinvent the wheel.
Wire fraying wasn't my concern, if it was my remark(s) you were addressing there. My issue was that the buds are yanked out of my ear when the wire snags a twig.
(I'm an audio-video engineer by trade. I don't expect studio quality with an iPod/mp3 player - ever.)