If I recall correctly, Wadia makes a nice little ipod dock that extracts the digital signal from the ipod.
As far as a DAC goes, your problem is going to be finding a DAC with that much flexibility. The first that comes to my mind is the Emotiva XDA-2, on sale right now for under $350. I've been running an XDA-1 for a while now and it's a good little DAC.
I don't know how much of improvement it is that you can expect for the DAC though. It depends on the stream that you're sending it.
As far as a DAC goes, your problem is going to be finding a DAC with that much flexibility. The first that comes to my mind is the Emotiva XDA-2, on sale right now for under $350. I've been running an XDA-1 for a while now and it's a good little DAC.
I don't know how much of improvement it is that you can expect for the DAC though. It depends on the stream that you're sending it.