At CES, Wadia released their new i-Transport Dock, which bypasses the internal D/A and Output stage of the iPod.
The output from the Dock is Digital and the implication is that no D/A is taking place.
The ABSOLUTE correctness of this and how much of an improvement it will be in reality remains to be seen
however the iPod can only output analogue it has no SPDIF output so either it uses the USB/Firewire connection and has some clever electronics to control and stream a firewire signal and turn that into SPDIF I don't know.
But the basics are the iPod has neve had a SPDIF/pcm output on the connector.
Michael.