The quality of your sound is medium-fi. I have compared the line out of the iPod Classic with various digital sources, including a mid-priced CD player, a mid-priced DVD player and a PC with iTunes. The players were auditioned with their internal DACs, a mid-priced receiver's DAC and several mid-priced external DACs. The PC was auditioned with the receiver and the external DACs as well.
As might be expected, the iPod came in last in all comparisons, with reduced detail, high frequency response and dynamics.
There are not a lot of digital iPod docks available, but they include the Wadia 170i/171i that you mentioned, the Onkyo ND-S1 (not available in U.S., but can be sourced from Europe and Japan) and the Peachtree iDecco integrated amp/digital iPod dock.
There may be other docks out there, or soon to be released, but these are the only ones that I have seen for sale.
Steve