I am far from an expert when it comes to hi-fi audio, but being a computer engineer, I can answer some of the confusion regarding the technical side of your questions.

A D/A converter translates digital data into analog signals. Digital data is in a format that is useful to computers but needs to be translated into analog electrical signals before it can drive speakers. When you use a digital connection from one device to another, a D/A converter is not involved in the process, the data just gets passed on through the digital cable. Whichever device outputs the analog signal is the device that will have to do the conversion.

I only have an opinion on the ipod DAC and it is based on the assumption that the ipod DAC and the iphone 3G DAC are identical. My opinion is that it sucks. I use the iphone 3G and I listen to it only as a last resort (when it would be far too inconvenient to pull out my laptop and external DAC). Don't get me wrong, I still enjoy listening to music through it, it just doesn't hold a candle to other DACs.

Actually the Ipod dac is pretty good.
It's the amp after the dac that sucks.
That's why serios head-fiers use a Line Out Dock (LOD) to feed a high end portable amp like the Ray Samuels Shadow. Combined with great IEMs the sound can be extraordinary.