Hmm... Seems to me there is confusion in this thread that may not be evident to all--the difference between an iPod as a source v. Apple Lossless as a source.
Even with good cables and Apple Lossless files, I find the iPod a pretty terrible source--hooking the iPod up to a stereo via a line out. The reason is that the DAC inside the iPod is, well, a DAC in a piece of consumer equipment that prioritizes size and cost. It is compromised.
On the other hand, you can get very good sound from Apple Lossless files that are sent digitally to a standalone DAC--Marco's solution with the U24, Drarmi's solution with the offramp. In those cases, the Lossless file is decompressed with a piece of software (e.g., iTunes, foobar) on a computer, then sent via (in those cases) USB to a USB to PCM converter, then into your DAC. That isn't really using an iPod as a source because you can do this whether you have an iPod or not.
Two very different kettles of fish that may explain the difference between good and bad results.
There are no real solutions I've seen for taking digital audio out of the iPod and converting to a PCM stream that can be fed to your DAC. There is one out there (I think), but I don't call that a real solution 'cos its like $2K. You can build a nice music server for that.