HTC Hero :: Wired Headset Connected Issue

I have a serious problem with my HTC Hero. Basically, all of a sudden I got this icon of a pair of headphones in the notification area. I checked what it meant on the manual and it means: Wired Headset Connected.There were no headset connected when it appeared and never before because I have never put any headset in the phone. I thought that by restarting the mobile I'll have it solved..but no..the icon remains there. The major problem is not the icon in itself but the phonecalls. When I call someone or someone calls me, there is no sound in the ear speaker because the sound output is basically going into a headset that does not exist. I tried putting the factory headset in and out to refresh the icon however this does not sort out the problem neither. There is no setting to switch this thing on or off and I have no idea how it came up. I tried all settings even during an incoming call or so but nothing..there's this flag that keeps indicating a wired headset. I don't feel like formatting the phone because it's not fair!! (and i dont have the damn time to play around..it costs good money so i pretend it works fine he only way I can have a phone conversation is either by putting the call on speakerphone (obviously losing privacy) or by carrying a headset around with me all the time.