Really. Let me take the horrible liberty of making a couple of assumptions. You tell me where I go astray.
First, when you (ahem) borrowed those "5k tunes" from the library, you plunked them in the laptop, iTunes did whatever it did on default settings, and VOILA! copy? If so, you've likely got AAC files (maybe at as low as 128kps), and that's what's on the old iPod.
If you're with me so far: yes, a cheap y-splitter cable is probably your best bet. You'll be able to listen to your 5k iPod tunes, straight from the iPod, on the big system. Reason being, lossy compressed AAC files are garbage -- and no amount of shit-polishing is going to change that. Don't waste time or money trying.
Now, if you wanted to convert to a digital source using lossless 16/44 rips or higher rez material (format of your choice) this would be a very different conversation. First would be to ditch the iPod. There are two ways to get data off of an iPod: analog, having passed through the POS onboard DAC and out through the headphone mini jack, or digital, out through the propriety apple fangle at the bottom. You can put lossless files on an iPod (but not that many, cause they're big), use something like the Wadia dock mentioned above to harvest those files from the iPod without screwing them up too much in the process, then get yourself a decent outboard DAC, and go from there to the system. But, if you've managed to get yourself a library of lossless files on a computer (to put on the iPod), you're much better off using that as a source than detouring through the iPod in the first place. (Enjoy it on the go, but there are much better options at home.)
Right, if we've gotten this far, the questions start to look like this: PC or Mac? Archival software? Playback software? To over sample or no on the software end? How are you bypassing the onboard DAC (optical, USB, etc)? Only once you've answered these questions for yourself can we begin to have a meaningful discussion about off-board DACs (yes, you'd need one, and there are lots and lots at every price range you could imagine wanting). Meantime: y-splitter. If you want to go much beyond that, sound like you may need to rethink some stuff. Make any sense?