Apple iPhone Sound Quality?

Have the iPhone. Sounds exactly the same as any iPod. I have two of those.
I will say that Apple Lossless, assuming good CD recording to begin with,
( ala XRCD24 ), sounds better than any compressed format.
Pros, cons, pros, cons, etc. Regardless, good recordings sound better
w/o lossy compression. Crappy recordings ... hardly any difference.

The iPhone has the same Wolfson 8758 DAC as the latest generation Video iPod, so it should sound similar if not the same.

I agree, likely it sounds the same as an iPod. Nothing more should be expected.

There is a headphone jack on the iPhone and a line out if you plug it into the dock or a third-party connector (similar to other ipods). Unlike an iPod, the stock headphones on the iPhone include a mute switch with an integrated mike to talk on the phone. The headphone jack is recessed, so some headphones do not fit. I tried my Etymotic 6i's and they fit and sound good. Just for testing, I tried some HD600's and they did not fit. There are some adapters you can buy to use any headphone. I don't think there is a digital out. I agree with the Macworld report that sound quality is similar to any other iPod. The video interface for the ipod features on the iPhone are amazing and take the iPhone to the next level, with lots of cool ways to view and organize music and video. The main audio limitation is the 8GB capacity. Keep in mind that you are limited to about 7GB of free space on the 8GB iPhone.

OK the deal is that if you own an iPhone and pay the $60 transponder fee being advertised on the gon these days, and call the special number using the iPhone, then, because, you know, the phone is part of the system, it will turn your iphone into a state of the art digital player, which you can then hook up to your system. And, as a bonus, compressed files sound totally uncompressed.

Haven't heard one but there's a long comparison piece in the latest online version of MacWorld. Here's one quote:

"Listening: The iPhone sounds as good as any iPod you’ve ever owned. Mine plays through the portable speaker systems I’ve connected it to via the Dock connector port on the bottom of the phone—though the iPhone tells me that the attached peripheral is not supported and offers to switch the iPhone into Airplane mode to avoid generating audio interference. Like the latest screen-bearing iPods, it supports gapless playback so you can feel secure asking it to play the B-side of The Beatles’ Abbey Road or Brian Wilson’s Smile without interruption."

Apple doesn't provide any way to get a digital signal out but there are modders who do it, at a high price. There have been several threads about that recently.

Relative to what? It's a phone...that should tell you something.