Economical alternative to Wadia ipod dock?

I think you pretty much summed it up the Wadia and ?. I don't know of any other product that can pull digital out of the ipod short of a few companies that have to mod the actual ipod to get it to work and costs way more. The Wadia is a great product and sounds great too. It doesn't work so well with older ipods or even the iphone. I think that is the main reason you see so many for sale. It is a little misleading that they support older ipods. I have a 5th (I think) generation ipod 80GB that they only way it works is you have to start it playing and then dock it and it will continue playing with the screen basically blank (you can't see what is playing) The iphone sort of works but mine constantly keeps beeping and asking if I want to turn on airplane mode to avoid interference. I just picked up a new ipod classic and it works perfect. If I were only going to have an older ipod to use with it though I'd sell mine for sure.

Also if your son is not ripping to at least lossless then you may want to reconsider everything since that is the most unmusical experience possible. That is listening to digital music via MP3 quality.

Just get a mac mini instead of a doc. The mac mini is $599 and is a full blown computer which will have iTunes in it, ability to act as a music and movie server and he can plug his iPod into it. Best of all it has digital out.

Buff:
Hmmm... My son has an apple computer, stores a lot of music on it, and now I'm wondering if it has the same ipod in/ digital out feature that the mac mini has. Unless you know this feature is specific to the mini, I should see what the possibilities are for his computer. (I'm trying to put this part of the system together without him knowing...graduation present.)

All later model macs have a digital/analog headphone output that will do analog through a 1/8" headphone cable OR toslink with an adapter. It works incredibly well and when using for music you don't actually play direct from your iPod, but music comes from iTunes and can be digital out or analog chosen in the audio set up menu. They will output up to 96k resolution too so if you have a dac which will handle high res like the PS Audio digital link III or Bel Canto dac3 (I sell both) it will work marvelously. If I can help you with anything feel free to contact me through my web site or audiogon.

It sounds like he stores a "primary" copy of the music on his computer, so I'd definitely just look for a good DAC he can connect to that, ideally via USB. Think Cambridge, MHDT, Wavelength, etc. Connectivity directly to the IPOD is just too limiting, at this point.