In order.
As always in these situations there are different ways of doing things depending on your priorities. Sometimes you need to think ahead, something that works for the moment but allows expansion down the line.
If you are not Apple based, a new 128GB iPod is a lot of money, a straight replacement for whar you have, but is it what you want? Where do you listen to your music, how important is the portable aspect of the iPod, can you use your phone for mobile use?
For example, I use a cheapish low capacity iPod purely for mobile use, I rotate a selection of music so the small capacity is unimportant.
Everything else sits on a network hard drive, you can use your PC for this, and accesses from my streamer. You could use a Yamaha WXAD-10 to do this, Songcast is an excellent app, and it has both Bluetooth and Airplay built in. Toslink out, so straight into your amp.
Note. In hi-fi, most digital connections use the 'Sony Phillips digital interface' (SPDIF) coding, this can be transmitted over either an electrical coax (rca/phono) cable or an optical cable known as Toslink. Functionally they are the same.