the dac in the wadia is to blame. use a better dac.There is no DAC in the iTransport.
I am confused how you are using the iTransport, what do you have it connected to? Are you using the DAC in your Cambridge CDP?
It has been reported that the iTransport has a fair amount of jitter, so it is important to use a DAC that reclocks the signal. If the Cambridge does not do so, or do it well, this could be the difference.
People will argue endlessly about hearing differences in the formats, such as Apple Lossless vs, WAV, which is what CD's are; I have yet to dicern a difference, but that can simply be the way my gear does the conversion. All things being done right, I do not see why there should be a sonic difference.
As for "how can it be better than the CD", well there can be more than one reason and those smarter than I may chime in. But for one, a CD transport isn't always a stable platform and it reads once, as I understand it. A server based platform, like an iPod, "can" be more stable, plus when I copy my music to my iPod I use error correction, so it may take several reads to get it right, This may be overkill, but it doesn't take that much longer.