Agree; definitely use the line-out, or the line-out on a Dock if you don't have one on your iPod. Do not use the headphone jack which runs off the tiny op-amp in the iPod. Better yet, if there were some solution to get a digital output from the iPod that could run into an outboard DAC, then you'd be cooking with gas! I started a thread a while back, which I'll ammend now having just seen this implemented in a mini-system by Monitor Audio. If you read the
description of the features of this mini-system, it claims to use the iPod simply as a digital feed and use its own DAC to do the conversion. I have no experience with this unit, so can't comment specifically, but that'd be the way I'd want to go. Short of that, line-out and you will still need that 1/8" mini to dual RCA iPod interconnect. I use one of Signal-Cable's silver versions of this plug and am very happy with it (about $70). Do not make the mistake of buying one of those docks with the RCA outputs directly on them (can't recall the manufacturer...costs $99). I tried one and they are truly horrible. They do put some kind of filter, circuitry or op-amp between the iPod and the outputs. Whatever that circuitry is absolutely ruins the sound. I took mine back after two days and went with the basic Apple iDock for my 60GB iPod (which otherwise has no line-out). The iDock has a mini jack for line-output. The signal from the line-out this way is markedly better than going through the headphone jack.
As far as the naysayers go; don't knock it till you've tried it. The one huge advantage it offers is having a big chunk of your music that you can bring anywhere with you. I have a hook-up to my Alpine deck in my car, and travel with a head-amp, and sometimes powered speakers to enjoy music in my hotel room. 300+ CD's at my fingertips in lossless format. At home it makes for a thoroughly enjoyable source via line-out for everything but critical listening, where I still think most would be hard-pressed to tell the difference. Of course you'd know it was there in your system and you'd have to live with that nagging thought. Eventually the Audiophile Police would come a knockin' and confiscate your membership card and decoder ring. You'd be black listed in the community, shunned by those who deplore such mediocrity, and if you listen long enough your johnson will shrivel up and fall off, and you'll go blind.
Marco