Headphone jack

It's not easy to make a proper headphone jack (there is no power amp in the MD2 for a start), but you could stick a potentiometer at the audio output on the A/V port and put a 3.5mm socket there. It wouldn't be very loud though...
you can wire it up to the audio pins of the AV port. it'll work fine, the sound output is actually loud enough.
It could be possible to install a small amp to the inside of the Gen 2, although I don't think it'll fit. I had built a small stereo amp on a small 3.5" PCB, but even that wouldn't fit. I suppose it could be possible to make one on a much smaller board. You'd have to make your own traces though so that everything could be wired in a much smaller space. You'd have no problem hearing the sounds then.