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I'm not super familiar with the iPhone, however, on the Blackberry Storm there is an option in Pandora to enable "High Quality" (I'm assuming 128kpbs) streaming audio. This sounds at least 10x better than the Standard Quality (I'm assuming 64kbps) stream. Maybe there are some options in your Pandora app to switch streaming quality as well?
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Loaded 2SS/RS Victory Red... waaaaaaaaay better than my Mitsubishi Lancer!
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