Working in a noisy work environment and listening to music is counterproductive for intellectual demanding work. For example: we don't write exams in busy cafeterias, or write resumes through loud movies, and Libraries are quiet for a reason. Noise; whether it be music or background noise does negatively affect your ability to get things done.

DeMarco and Lister (in Peopleware) present the results of an interesting experiment:

During the 1960s, researchers at Cornell University conducted a series of tests on the effects of working with music. ... They put half of each group together in a silent room, and the other half of each group in a different room equipped with earphones and a musical selection.  Participants in both rooms were ... given a programming problem ...

They discovered that the majority of the people working in the silent room could pick out a pattern in the programming problem and could come to a quick clever creative solution. Whereas the people working with music playing were able to solve the problem, but didn't make the creative leap.

They go on to explain:

Many of the everyday tasks performed by professional workers are done in the serial processing center of the left brain. Music will not interfere particularly with this work, since it's in the brain's holistic right side that digests music. But not all of the work is centered in the left brain. There is that occasional breakthrough that makes you say "Ahah!" and steers you toward an ingenious bypass that may save months or years of work. This creative leap involves right-brain function. If the right brain is busy listening [to music], the opportunity for a creative leap is lost.

In their book they also make the point that open space work environments and cubical farms are not conducive to knowledge work, and that all employees (or at least groups of employees) should have the ability to close their door. Great companies do follow these guidelines, but many of the smaller companies or transitional companies (at least the ones I've worked in) tend to air on the dilbertesque side (the noisy cubical farms / open concept).

To compensate for the noise in the work place I've resorted to wearing noise canceling earphones without music. These earphones double as a metaphoric door - it indicates to those around me that I'm hard at work and not to be disturbed. Noise canceling earphones let me create my own personal audio walls, but eventually I become the weird guy with the earphones that aren't plugged into anything guy.

As a lowly developers it's hard to make the case to management for a quieter work environment (let alone an office with a door), but we can keep our eyes out for companies that share these values, start our own company, or take opportunities that let us work from home. In the meantime thank goodness for ear plugs (err.. I mean earphones).