This is the last music player you'll ever need on your iPhone. It handles your playlists and your library, but more important...it converts the audio into 3D Surround Sound.
It only works with locally stored music, and there's a slider to control the intensity of the 3D experience, so you're not looking over your shoulder all the time. It also adjusts its output to account for whether you're wearing over the ear headphones or ear buds.
Its Free in iTunes...but after 5 days, if you want to keep using it, it'll cost you $3.