Playing music through an iPod (via RCA leads into amplifier) will always be a compromise between sound quality and convenience but that is okay as long as one doesn't expect "CD quality" sound.
What comes out of the iPod headphone socket or dock connector is an analogue signal from the iPod's internal DAC (digital to analogue converter) which is of decent quality for earphone listening etc.
But to achieve CD-comparable sound quality in a Hi Fi system, I believe you need to bypass the iPod's own DAC and feed the raw digital signal into an external DAC by using lossless files. The only way you can do that at the moment is via the Wadia Dock which bypasses the internal DAC and sends out a digital signal, which can be fed into a good quality external DAC like the new Beresford DAC, or DACMagic, or even more expensive DACs. Besides Wadia, other current docks accept and send out only the analogue signal, ie after iPod's internal DAC has been used.
Another way, using Apple equipment, to feed digital signal to the Hi Fi is via a PC/Mac playing iTunes and connecting the PC/Mac to an external DAC either via USB, or wirelessly via Airport Express if one has a wireless network at home.
The thing to bear in mind is that no matter how you feed the digital signal to the hi fi, the higher the bit rate the better. I can hardly tell the difference between my lossless iTunes digital setup and a decent quality CD player costing £750 to £1000 or so.
Hope this helps the OP.