Dell Inspiron One All-in-one computer sound is awful

That is unusual. The sound out of the audio jacks should not be affected by any internal processing unless you specifically enable it.  Here are a couple of things to try. 

1) Disable all of the THX sound features. You have to disable them all one by one.  See if that changes the sound output

2) Disable all Realtek sound effects in their control panel (EQ, reverbs). See if that changes anything.

3) Finally, disable al audio enhancements in the Windows audio control panels. This can be done by right clicking on the Windows speaker in systray, select Playback devices, double click on the Speakers or Line Out/Headphone Out bar in the list, select the Enhancements tab, and click on the "Disable all enhancements." NOTE: this is very literal. It will disable all of the audio effects on that output device including the two items listed above. It basically forces the driver to stop doing any extra stuff it was doing before.

If you do resort to step 3, you will need to be careful with playing back audio on the internal speakers. Sometimes there are Equalization and filter settings to help protect the speakers inside the system.

Thanks for the tips.  I did not try them though.  I ended up going out and buying a nice Klipsch Promedia 2.1 sound system with subwoofer and this worked great.  I plugged into the line out jack instead of the headphone out jack and everything sounded great right out of the box.  I'm still not sure why the plain speakers internal to the computer sounded so awful though.  I've actually ordered another, nearly identical system for the family and if that one sounds better then I'll send this one back to Dell for a new one.

Again, thanks for the tips.

Those Klipsch speakers are nice!  Glad you have some resolution.

Well I am having the same problem! Have a set of Altec Lansing speakers/subwoofer that I have had for probably 10 years and used on at least as many different computers. Until this 2305, I have never had an issue with the sound out of these speakers. When I first got the 2305 I was thinking I would be able to completely de-clutter my desk with this "all-in-one" setup and THX sound system (I didn't have grand expectations from built-in speakers, but...) The sound (both quality and overall volume capability) is downright horrible for the built-in speakers. So, hooked up my "tried and true" speakers only to have the exact same issue as described by the OP (bass/low end distorted/muffled) 

More than anything I just wanted to post my experience for others as I think I am returning this system (actually have two on hand right now due to the issue in this thread on the first system they shipped)

I've recently bought the Inspiron One All in One PC and I agree, the sound quality is AWFUL!! There is absolutely no base at all and completely rubbish for music.  The enhancement settings are garbage and completely useless - hallway, padded room, a sewer pipe??!!  I was looking forward to getting a new PC with no messy cables but now I have to purchase expensive speakers to make playing music worthwhile.  It's a nightmare!  It's a shame DELL didn't put speakers as additional items to buy with this as I would definitely have bought them if I knew they would make a difference. 

Please refer to this to get better sound quality and more low range bass in your all in one PC's speakers:

en.community.dell.com/.../20003618