Digital inputs on speakers are extremely rare. The only company that immediately springs to mind is Meridian and those are extremely expensive. Since the analog outputs of the Wadia is better than almost any iPod dock it's still a good investment to pair with the Audioengine speakers.

Have you changed the default settings in iTunes? Out of the box the setting in iTunes optimized to maximize storage space, effectively minimizing sound quality. Changing these settings is fairly straight forward. Go to the