840C as a DAC. What do I need

It depends Goat. If it's fairly easy to run a cable from the digital out, it's not. You can also do it wirelessly fairly easy and inexpensively. These work great if all you need is CD quality.
http://audioengineusa.com/Store/Audioengine-W1

If you want better sound than plugging the Ipod into your preamp with RCA (and therefore use the Ipod's dac), try the Wadia iTransport. It takes digital out from the Ipod, and converts it to SPDIF RCA which you can then plug in your cambridge audio.

http://www.musicdirect.com/product/82178

Arguably you can get better sound out of your PC directly... but the cost and especially the complexity to do it right are much higher.

The Pure looks good but it can't make an iPod sound much better if the files aren't high resolution.

I just did a Google search on the Pure i-20 mentioned above, and it looks like it might be just the ticket. I'll likely be getting one myself. It has an internal DAC of its own that outputs in 24-bit 192 KHz, as well as digial outputs that bypass it's own DAC so you can run it into your 840C. HiFi Choice gave it a great 5 Star review and What HiFi rated it 4 stars with highly favourable review as well. Here's a link to the manufacturer's site and a discussion thread:

http://store.pure.com/store/pure/en_US/pd/productID.221628800

http://www.head-fi.org/forum/thread/529956/pure-i-20-ipod-iphone-dock-as-a-dac

Your computer would be better because you can simply use the digital out from it into the DAC and then anything on the computer can be played back. You can even download some hi resolution stuff and use it with the DAC. To play back the iPod simply get a mini plug to RCA adapter and plug it in to the sound system or get an iPod dock which is better because it keeps the player charged.

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i ,ve been using the pure i-20 for 3 months and would never go back to using the ipod dac or headphone out. 99 bucks free shipping when i bought mine. there are some british magazine reviews on line. very flexible with lots of outputs and a internal dac if needed. i use mine with a decco integrated dac and a musical fidelity v-dac on my systems. good luck with hooking your ipod up,

Hi Grimace, I just read your follow up post. Indeed it is easier to get good sound out of your computer than an ipod, that's what I do with the HRT Music Streamer II+ and my laptop. Does the 840C accept USB inputs? If not, you will need a USB To SPDIF Converter (assuming that your computer doesn't have a SPDIF output), such as Musical Fidelity's V-Link:

http://www.audioadvisor.com/prodinfo.asp?number=MFVLINK

Here's one option: HRT recently released the istreamer, which is a small DAC that accesses the ipod's internal digital files and bypasses the ipod's own DAC. The istreamer coverts the files to 16-bit at 32, 44.1 or 48kHz:

http://www.audioadvisor.com/prodinfo.asp?number=HRTIST

I have HRT's Music Streamer II+, and use it with my laptop's itunes running into my dining room integrated amp. The result sounds very good, especially for the kind of casual listening we use this system for (while cooking, eating etc).

Get one of these and plug it in to one of your amp's unused inputs. Not the phono input, as stated above. If your intention is to have an easy way for your wife to listen to her ipod on your system, this is it.

Although I suppose it might be more versatile, and potentially better sounding to run out of the computer.... anyone?

for a couple of bucks you can get a mini to rca cable and plug the ipod directly into any input (other than phono) on your cambridge. you'll be using the internal dac in the ipod, but it'll sound as good as listening to the ipod directly and she should be happy.