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The new Volume Limit feature works with any headphone or accessory plugged into the iPod headphone jack as well as the iPod Radio Remote.
Apple is already facing a lawsuit filed by John Kiel Patterson, of Louisiana. It was filed in the US District Court in San Jose, California. His complaint is that his iPod is capable of generating more than 115 decibels. This is considered a dangerous noise level for prolonged use.
Attorneys representing Apple iPod owners in a national class-action lawsuit against Apple iPod remarked that Apple's move to limit iPod volume acknowledges product flaw.
Download Apple iPod Sound Firware update
Source: Apple Press Release