Bypassing the iPod cheap analog to digital audio circuitry is needed in order to get a good sound... Most iPod docks just use the iPod crappy analogic output signal (even expensive ones like the Krell that are just swindles!).

For what I’m avare of, now there are only 2 iPod docks that can directly extract iPod digital signal (without hack/modification of the iPod itself!):

n.b. Yes the ipod can output in digital! it’s just that the signal will only go through a device with an apple authorization chip?/system (~like HDCP with video)

Wadia Digital 170iTransport
Onkyo ND-S1

Onkyo ND-S1

Then hook the dock digital output (no need for fancy cables, as the digital information is resistant to some signal distortion…) to a dedicated good quality analog to digital converter (no need to go “uber-audiophile”, as the main internal components are always not that expensive chips by companies like Texas Instruments!):

e.g.
Cambridge Audio DacMagic
Firestone Audio Fubar4-Plus
Benchmark DAC1
Emotiva XDA-1

Cambridge Audio DacMagic

Then hook the DAC analog output to your (pre)amplifier with good cinch cables (as the analog signal directly represents the sound, unlike when encoded digitally, the information is therefore sensitive to signal distortion/loss!).

With this setting as there are no bit loss (unlike with a CD where vibrations, physical disc damage can result in data loss) + with Apple Lossless files, iPod represents a bit-perfect digital source better than any CD player… Too bad iTune store doesn’t sell music in Apple Lossless format (but AAC at now 256kbps [sampled at 44.1 kHz to 192 kHz on 16 or 24bits] ~hi-fi transparent)...

n.b. without an ipod, another good, small, cool source: Logitech Squeezebox Touch
(has a digital output, no need for a pricey dock!) or cooler: a MacBook Air (connected via usb).

n.b. Sept 2010: iOS 4.1 update: completely messed up sound!
Nov. 2010, iOS 4.2: ok again!