It actually is possible to get digital out from an iPod that bypasses the internal DAC in the iPod. Wadia and Peachtree Audio both do it. I doubt any car audio systems do it. It would be rather silly to do that for car audio. But who knows, I don't follow car audio. The Wadia and Peachtree Audio units are rather silly as well. Fancy DAC options that will be obsolete when Apple decides to change the iPod connector or the internals or the form factor.
Ahhh... I see. Interesting.
I hadn't seen those particular devices in my searches, but I did find a number of other devices that
claimed the same thing in their initial promotional materials only to back down later (or "clarify" their claims). It does seem, with further research, that the Wadia device at least does do true digital out from the iPod. However, the way they're doing this is essentially the same way a Mac plays the files back digitally. They licensed the USB "sync engine" from Apple (which is closed and proprietary and expensive), and the dock actually reads and plays the digital files themselves from the iPod (it bypasses the playback engine of the iPod completely, not just the DAC). And I still haven't been able to find any results of a test where someone actually hooked up a digital cable and monitored the signal and confirmed that it is actually bit-perfect with ALAC files. A bunch of claims, and a bunch of "it sounds wonderful" posts, but no real tests. Of course, the threads are all long and I'm not spending a ton of time on it.
This has a number of awful side effects, including primarily, that you are often completely reliant on the "dock" for file navigation and playback controls. Many of the end-user reviews I found of the Wadia iTransport were decidedly negative. I also suspect that you might be left in the lurch with a complex device like this with upgrades to iOS on Apple's newer iOS products.
I also did find a bunch of posts claiming the same for a number of car stereos, but these posts were universally all from salespeople who may or may not be "misinformed" (I found one particular Crutchfield set of posts that claimed this, for example). I could find very little confirmation from people I trust confirming that these units actually do function like the salespeople were claiming.
EDIT: This guy art Stereophile did actually apparently confirm it, at least with the older Wadia iTransport.
Footnote 2: I recorded the bits coming from the Wadia's coaxial S/PDIF output to my lab PC via the digital input of an RME soundcard, with Wes's iPod Nano playing a losslessly compressed file. I then compared that recording with a WAV rip from the original CD. The files were bit-for-bit identical, meaning that the 170iTransport is indeed transparent via its digital output. However, the datastream appears to have fairly high jitter, which will make the Wadia's sound quality dependent on the D/A processor used.—John Atkinson
So that's a good sign. I haven't found anything similar with any car stereos though.