ipod connection to home audio system

Should be no problem as you describe it. For completeness sake, I know of one cheaper alternative to Wadia that taps the digital signal from the iPod/iPhone and also features a USB input: Onkyo ND-S1. Unfortunately, for some reason the product is not at all mentioned on Onkyo's US site. Still, for information here's a link to the European site (includes specifications and manual). This digital dock costs between EUR 130 - 150 over here.
http://www.eu.onkyo.com/products/ND-S1.html

Hi, I have never used a CPD2 myself but I see the player comes with 3 coax digital rca and 3 toslink inputs, so you're fine with either Wadia 170i or Onkyo ND-S1. The important thing is that you choose a dock that can read the DIGITAL signal coming from the iPod.