I also have a DS26 months who has a hard time pronouncing certain sounds and thus it is hard to understand him. He is likely to start speech therapy in a few months. It does not really appear to be a hearing related issue but we have not done all the tests yet. We predict it has something to do with him being brought up trilingually. In my search to help him I have come across this CD which has the 'typical' kids songs but on a much slower pace. 'Time to Sing' http://www.amazon.com/Time-Sing-Center-Creative-Play/dp/B0000DEOJ2 We have not listened to it a lot yet (we really should) but I feel he picked up some of the words quicker than in a 'normal pace' CD.
Our DSnearly5 has started talking really early so dealing with DS26 months speech issues has been quite challenging. And as people mentioned I have also started to learn to 'translate' his speech - if he says 'g' it could also mean 'd' etc..
I am glad to hear that time will eventually help to overcome some / most of the issues.