I'd agree with all the initial responses: If it makes him happy, why pinch a loaf in the middle of his listening room?
OTOH - since you are soliciting opinions, which are worth the aforementioned pinched loaf; I have done a bit of back and forth listening of my iPod (line-out with Signal Cables Silver IC's), through both my systems as well as through a great headphone setup. If it's not critical listening, but is being used for background music instead, I could see using it for the convenience. But I'm pretty confident I could tell the iPod from my front-end, and even from PC-Audio, every time. It is not as resolving, and does not get my foot tapping and my head bobbing. Through heaphones the differences are magnified even more. It's a great way to take lots of your music with you. I've used it at work, working out, on the road, and in the car. In all those non-critical listening scenarios works brilliantly. If you have a decent front-end at your disposal, and the software to play the music, I see no reason to use an iPod as a front-end in a home stereo.
Now who's going to clean up that mess in the middle of the room? It's starting to stink in here!
Marco
PS Per the tomato condiment dude - There is no native digital output on any current iPod (that I'm aware of) - you cannot go to an external DAC witout serious modifications. The best you get currently is a line-output, which still uses the mediocre DAC in the iPod for conversion. There is at least
one company doing a digital-output conversion at a very significant price tag (why bother). Apple supposedly did release some kind of USB protocol for the Ipod, but has not implemented it in any of the models at this point.