I used to listen to my ipod while commuting but now I don't. An accident a few months back was a wake-up call that on a bicycle u need every form of self-defense possible. If u look at it one way, commuting in traffic is almost like playing one of those 80s videogames. One hit and you're wasted. Passing cars are like guided missiles to us hapless unprotected cyclists.
Now while it's true that wearing headphones will not help u avoid a driver who decides to plough into your back, there's countless other subtle scenarios where they can be dangerous. Just one example: you're riding towards a pothole and due to your iPod can't hear the car approaching behind. You swerve to avoid the pothole....SPLAT.
I would say only do it on quiet roads with minimal traffic.