If you use the 170 without a DAC, the playback is not much better than using the normal Apple dock.

However, if you do go with an outboard DAC, the results can be phenomenal. I've had great luck with the Wadia 521 and the DAC section of the Meridian 808i, however these are pretty much overkill for the average iPod user.

On a more down to Earth level, I've had really good results with the Channel Islands DAC (599), the new one from PS Audio (1000) and the Benchmark DAC1 (1000-1500 depending on configuration...