First of all: thank you for your significant effort to write this. But...
You may want to read my posting as of 10:54pm noting, that expanding the chain with a powered USB hub didn't help.
Based on what I understand you to have written, that’s also your situation: a warning appears, but then the phone/DAC continue functioning, correct? If so, simply ignore it....very unfortunately this is a misunderstanding: Immediately when the iPhone’s message appears, then the music stops. Also in
"the little triangle ball thingy. That should present you with a list of audio output targets"the "AudioQuest Dragonfly" output marked as connected disappears and is substituted by an "iPhone" output marked as connected. And indeed I can get the music now through the iPhone’s speaker. Disconnecting the lightning/female USB cable and connecting again brings me back the "AudioQuest Dragonfly" output marked as connected, but only for app. 80 seconds... :-(
You may want to read my posting as of 10:54pm noting, that expanding the chain with a powered USB hub didn't help.