Theres nothing better then riding through traffic on a nice day, with a nice song on and relaxing. Its great.
It doesnt effect your balance, if you think it does you have no balence.
You can still hear, if you get to traffic you can focus on traffic easily and blank the music out. Its automatic.
What also is good, is going down a county road with a good song on. The road can be boring, but you have a good song on. You can happily get into the music and have cars coming past you, be drumming on the handlebars or in the air and be safe.
I think that actually talking to someone while cycling is more off putting. You tend to look away from the road for abit, or focus on their voice, and you can just have someone in a car just appear behind you.
Wind is also dangerouse, if its blowing in the wrong direction, you cant hear the car coming up behind until they are close. Or the wind will completely blank out your hearing when your going fast, or theres a strong wind.