Do earplugs of mp3 players cause loss of hearing? Anahad O’Connor’s article on the subject suggests that they do. Here’s a much better article on the same subject by a BBC reporter.
What this suggests: you should buy a headphone more for its ability to muffle ambient sound and less for its intrinsic sound quality. Also, you should set a maximum volume level and not turn it up to compensate in noisy areas (buses, shopping malls, etc). Finally you should not worry about looking gay or uncool with those headphones that hang out of the ear. You may look conspicuous, but at least you are doing the right thing.