I haven't really had time to read this thread in detail, but I thought I'd point out there are a couple issues other than compression.
- Quality of the DAC in the unit.
- Ability to use the line out instead of the amplification section in the player (which typically isn't very good on portable players).
So, even with a lossless format, sound from an iPod might not sound optimal when run through the headphone output into a good stereo system.
Likewise, it has a so-so DAC.
In the case of the iPods, you can get an adapter to provide a line out such as:
http://www.sendstation.com/us/products/pocketdock/lineout-miniusb.htmlIn addition, it is possible to bypass the internal DAC on the iPods all together with a device like:
http://www.wadia.com/products/transports/170i/design.phpThat said, I'd suggest for a car, you don't really need an off-board DAC. My guess is line out is plenty good enough.
As for home stereo, harder to say. Some people will be pretty happy with line out, some won't be happy until you run lossless to an outbound DAC, re-clocker, etc.
To really dig into this, spend some time hanging out on head-fi.org forums.
-john
An iPod touch running an line-out adapter to an external amplifier: