It will not work like this becaue the iPod is not sending the digital signal thru the USB as-is. You either need the iPod transport, such as Wadia 170i/171i (better wait for the 171i). I am in fact considering buying the Ayon CD-7 instead of CD2-S because CD-7 now could extract digital signal from iPod (not sure about iPhone nor iPodTouch). Hope this helps.
Ayon Cd Player to IPOD
Has anyone connected an Ayon Cd player to an Ipod. I have a CD2-S and used the USB port in the back of the player. I connected that and the ipod usb ends to a female usb and it is not working. I know the ipod is fine and the Ayon worked fine with a direct connection via the usb to my computer. I wonder if my connections are not right. thanks