First - how did your BIOS flash fail? <- because you dont wont that to happen again. (i assume you download the wrong BIOS for your board?)
1) you shur you have your headphones in the right jack, right? take a look at this pic, link -> http://www.newegg.com/Product/ShowIm...d%20-%20Retail
on my GA-K8NE board, the line-out is the center-left green one. thats the on your using right?
2) what audio drivers are you using? the nforce4 audio drivers? or the Gigabyte audio driver? you may as well try the one your not already using.
3) is it a plain GA-K8N-SLI? or is it for example a K8NU-SLI? or K8N-Pro-SLI?
4) Flashing it to the newest BIOS version of course be a probable fix, but dont do it untill you know why your first flash failed.
5) onboard audio is more then good enough for the average user... but if your looking for top notch sound quality(like a audiophile), you wont get best of the best sound quality from onboard audio. typically onboard is something like 16-bit audio with the basics, good after market sound cards are something like 24-bit audio with a lot more options, and probably greater frequency response or whatnot. If you wont professional info on audio cards someone in this link would probably beable to give you the necessary info -> http://www.hydrogenaudio.org/forums/index.php
im not a audiophile and the only soundcard name for music that i remember is the 'emu0404'.. the Creative Audigy2 zs i hear is good for gaming, and the X-fi's are better all around then the Audigy's but still might not be as good for audiophile music, i wouldnt know though.
EDIT: o yea you mentioned your using a headset. i looked up headsets b4 in the past when i was considering buying one. and the ones i remember that i concluded would probably be the best, for home use, is the ' Alessandro ms-1 ' ....i never did buy any though. especially since i dont have a sound card to match its performance.. would of been overkill for my uses anyway.