I believe there is a lot of misinformation and wrong thinking on digital, me included, as I am certainly no expert.
An observation of mine is that I think many of us have an analog mentality of copies when thinking of digital. To clarify, think of taking a photograph and making a copy on a copying machine, then taking the new copy and making another copy, etc. In doing this we expect the quality of each successive photo to be worse.
This is the mentality carried over to digital, which I do not see as an accurate view. I read comments from some where I can tell there is disbelief or hesitation that the iPod copy can sound as good as the CD it was copied from, because it is a copy and loss is assumed.
A good analogy I have read to debunk this thinking is of a computer program, it is 1 and 0s just like digitally stored music. You can copy that program as many times as you want and it will work, if there was any loss the program would fail.
Besides the 1 and 0s, there is clocking information passed along in the data stream, this is the information that a DAC can make a difference with, what is known as reclocking, not all DACs do this. (The DAC in question within this thread, the DAC1, does reclock.)
Again, I am no expert, so anyone more informed than I can feel free to correct and/or add to my comments.
If all I say is accurate, there is no reason the iPod should sound worse than a transport. It is my opinion it is about the DAC one uses.
As for Apple Lossless, many, including myself in the past, viewed this as a compressed format that losses data. This is not the case, if it has been explained to me correctly, hence why those in the know classify it with WAV, AIFF, etc. Here is how it was explained to me. If you have a data string of 00000 (5 zeros), instead of storing all 5 zeros, it would be stored as 50. In doing so, the Apple Lossless file can be converted back to the original 00000, whereby nothing is lost.
One more time Ill add the disclaimer of stating I am not an expert on this.