Apple's Airport, which works with iTunes, has a digital out that can be fed to a DAC. Not sure if there's a quality way to do digital out straight from the iPod itself.
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For those looking at iPods, look at the iRiver hp120 and 140's before buying. Much better sound from the headphone jack AND it has a digital output! I compared the iPod, iRiver, Samsung and Creative 20-40GB machines with the same headphones, same decoders, etc. and found the iRiver by far the best sounding, as did the 2 other people that played along with my maddness! It has tons of other features the other lack as well, and is darn sexy looking to book
*PS, I'm a powerbook owner and love macs, and even plan to buy an airport extreem to feed the laptop digital to my Benchmark dac, yet still favor the iRiver, which easily plugs into the mac, fwiw. Can't wait to see who wins with the Powerbook vs. the iRiver into the dac!
I'd love to hear the results of your comparisons of the PowerBook vs. iRiver/DAC. I've recently purchased the 40G iPod Gen 4 and love the sound with my Shure E5C headphones. The iRiver hp120/140 must be spectacular if it significantly betters this. Out of curiosity what were the differences you heard between the iPod and iRiver through the headphone jack?
Thanks and all the very best.