OK What's next with my iPod?

So, I've got an iPod Touch with many uncompressed CDs on it and it sounds surprisingly good through my Sennheiser headphones.
I connected it to an input on my preamp and got music. But it doesn't really sound very good.
What intermediary pieces of equipment do I need between the Touch and the preamp to get sound that rivals/exceeds my CDP? WHat would financially to accomplish this without foregoing my first born child?

WADIA - iTRANSPORT Digital iPod Dock $400
You would still need a DAC (not USB only) with the Wadia iTransport
The most performance I've achieved with an iPod (and Mac), is the Naim DAC or Naim Uniti or UnitiQute. The Naim DAC even made a Linn CD12 sound better.
The Peachtree iDecco will bypass the Ipod's DAC and use its own Sabre DAC. I love mine not only for Ipod, but also for use as a DAC for CDs and even sound from the cable box sounds much better (for example, watching concerts on Palladia and other music channels). I also use it as a preamp.

You also may want to check the settings on the Ipod settings to make sure that the EQ is turned off.
If you have your own DAC, a cheap and elegant solution is to buy an AppleTV for $225, sync it with i-tunes (160 GB), and use its digital output to send the digital bitstream directly into your DAC.
Thanks for all of your input. You've given me several solutions that I will research further.
Wadia 170i is the ticket. only catch is you'll need a good DAC to make it sound good. bottom line is bypassing the DAC in the apple device. get good ic's and an upgraded pc to take it up another notch. my ipod now comes very close to a good redbook recording. couldn't be any happier.
Tried the Wadia and Onkyo digital docks. All that taught me is that the iPod Classic DAC is not nearly as bad as others have reported. IF you take the signal from the iPod dock connector and run it through a good headphone pre (Cmoy is great) the iPod is a fantastic source. The reason the iPods get a bad rap is they are either using the variable volume headphone out or they don't have enough gain (~1V) from the dock connector. Once you give the iPod clean gain, it reveals how good it really is.
Grege: i'll concede that the ipod DAC is not that bad.

lets just call it "not good" instead =)

kidding aside.....were you using a good DAC?? very surprised because the difference was night/day when i tried the wadia. good ic's and a pc upgrade made a difference as well. i thought the Ipod sounded very "not good" in comparison (using a sony doc). wouldn't think a little extra gain could make that mush of a difference?....but then i haven't tried it either.

The Apple TV is far more functional and easier to use than the Wadia iTransport. And your Touch makes a great remote.

Synch all your music to the Apple TV (far more space than the Touch), connect a DAC to the Optical output, and enjoy. The Apple TV is also a bit cheaper.

There's a new Apple TV coming to the market soon, or currently out now. No experience with it. It doesn't have an internal hard drive, which was the main appeal for me. Maybe the hard drive version will be cheaper now that it'll be phased out?
Levy03 - to each his own. If you think pricey dacs sound better than the iPod dac, enjoy.

I tried many dacs (Benchmark, NOS dacs, Wadia, etc.). But after 30 years as an audiophile I finally realized that open loop listening is more about what you want to hear than what you are actually hearing.

For me now, it's all about the room, speakers and source material.