You're system is not listed so I can't tell what your standard of comparison is, but the D/A conversion stage of the iPod by audiophile standards is only adequate. The iPod is a great product, but it's really not intended to serve as a high quality source component to an audiophile oriented system. I know of no product that will allow you to bypass the built in D/A.
BTW, the best sound is obtained by turning off the EQ and setting the iPod volume as high as possible.
BTW, the best sound is obtained by turning off the EQ and setting the iPod volume as high as possible.