I wear headphones when I walk, but I don't have music blaring in my ears either. I can usually hear what's going on around me, and I do stop and check driveways and streetcorners as I walk to make sure no traffic's coming.
As I recall, if you're wearing regular headphones (not noise-cancelling ones) and can't hear the sounds of things going on around you, then you've got the volume way too loud. Regular headphones aren't supposed
to block out surrounding sounds, just transmit the sound of your ipod/cd player/walkman/whatever to your ears. It always drove me nuts in high school when my sisters would have their headphones loud enough that they couldn't even hear me talking next to them, and thus I could hear their music loud and clear. I pointed out that if I could make out the lyrics
of their songs without knowing the song in advance, it was too loud. They'd complain that then the music didn't block anything out, and I'd have to point out that it wasn't supposed to and they were probably damaging their ear drums.
This is also why I tend to not have the music in my car blasting loud enough to shake windows.