Alpine makes a head unit for cars that does not have a CD player. It claims to take the digital output from an Ipod. So it must be possible.
Also, check out Red Wine Audio. They do upgrades on Ipods though not the latest ones. They upgrade the analog section because they claim the DAC is top notch already. One review I read said that the upgraded unit is pretty much reference quality.
I have the Alpine iPod interface in my van. I'm not certain it is the one you are referring to but it was the only one they offered when I purchased it - basically a separate black-box interface that connects to the dock of the ipod and feeds the signal to the head unit. It works great (very convenient and sounds OK as far as car stereo goes, but is easily bested by a CD in the same head unit). It does not claim to take digital out from the iPod. It is a $150 accessory (when I purchased it) and I assume it is just taking the line output like all the other inexpensive docking devices for iPod and amplifying the line signal. I am quite sure that the Alpine head unit that I use does not have an internal DAC, nor is the black-box interface contain a DAC itself according to the manual. That Alpine iPod interface has been around for a couple of years now if it is the same one I have. With all due respect to Vinnie and Red Wine, my experience with the Wolfsan DAC in my iPod simply judging from the line output and decent interconnects would certainly not suggest it is a top notch DAC. I have no doubt Vinnie can improve the line-output signal, but that would not improve upon the DACs abilities which are critical in what you hear at the other end. I found the iPod line output to sound 2-dimensional and lacking in dynamics in the systems I've listened to it...fine for casual listening, but sure wouldn't want to sit in front of it for long. I've read some positive words for Vinnie's iMod, but can't recall any giving it the specific praise you mention as "reference quality" digital front end. Is there a new review out recently or any changes to the iMod?
Marco