Hello All,
I though I was just add my experiences because they are slightly different.
For me, the Fiio E1 transformed the sound quality from my new iPod Classic 160GB. The sound quality from the iPod's headphone socket is mediocre at best even with my Grado SR60i's. I have tried with a range of other headphones from Sony and Bang and Olufsen and none of them could really pull the sound from the headphone socket to an acceptable level of quality.
Using the the Fiio E1 happily worked with all my headphones giving more energy and drive, greater clarity and a soundstage that made sense at last. Still not as good as from my seperates but that would be an unfair comparison.
I have had a few people compare the iPod headphone output with Fiio E1 and all agree (in varying degrees) that E1 is superior. I'm sure there are better headphone amps but at least the E1 allows the iPod to remain a true portable.
So, I agree with wightnight that it sounds better but for me, spending a lot of money on headphones for use with the iPod's headphone socket will still come up against the fundamental poor quality of iPod's headphone output. Allowing money in your budget for a amp like the E1 could give you more than the equivalent cash (£18) spend on increasing your headphone budget, in my humble opinion.
Best Regards
Andy