There is no digital out available via the iPod's USB (or Firewire) ports on the 30-pin connector. There is an analog out at line level there, and it is much superior to the iPod's built-in headphone amplifier, so that is the output of choice for best sound quality on a bone-stock iPod.
However, you can go inside the iPod and take an I2S output from the Woflson DAC chip. This involves very good soldering skills and fine wire. You could then send the I2S out to a DAC's I2S input. Again, this probably would involve soldering skills. There is such a thing as DACs with I2S inputs, but for the most part they only use the I2S internally. Thus the mods.
If you understand USB it's fairly obvious why an iPod won't be able to connect to a DAC this way ... USB is a "dumb" interface that requires a controller chip and CPU cycles to manage the connection. The iPod and any DAC are just the "dumb" ports, so there is nothing there to do the controlling.
Firewire is somewhat different in that a Firewire controller is "smart" and does not need to be told what to do. Connect any two Firewire devices and they can talk to each other and self-manage the data stream. FW chips actually are mini-computers, with a CPU, memory, and data buses.
However the early iPods with FW I still don't believe will work, going back to the earlier point about no digital audio data available in the iPod. Whether USB or FW, the iPod is seen simply as a Hard Drive, not a Digital Audio Stream.
