I've been doing preliminary listening to my i170 over the past couple days, connected by both the digital and analong outputs to a B&K Ref50 processor for DAC. Milen007, to answer your question, it sounds better in my set-up when listening via the digital connection.
Other things to note as far as performance/features go is that the i170 has fixed level output, so the volume control on your iPod does not affect level (this is the case in both digital and analog connection). The click-wheel does not function while iPod is docked if you have an iPod Video when using the digital connection (I think the Nano may be the same case). iPod Classic is your best bet with the i170.
Overall, it appears and sounds to be a great product with little monetary investment ($350) and without having to get overly invested in PCs or music servers if you are not ready to go in that direction. I'm sure several post will be forthcoming, myself included after doing some critical A/B listening...it'll be interesting to hear what people have to say because it is difficult for people like us to admit a cheap product sounds close to our big ticket investments.....Steve
