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Ipods are great for on the go use, just get a line out doc, I wouldn't necessarily use it for a main source though. If money is tight just pick up one of the classic portable cd players IE: Sony D33, D36 they can usually be found on eBay pretty cheap theres a D33 going for $35 (I have no connection to the seller, just giving a for instance)
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It's a dock that plugs into the bottom of your Ipod, it bypasses the internals of the Ipod giving you a true line out, you would then control the volume with your amplifier.
is there a less expensive one that ends in RCA interconnects
I've never personally tried these, but Radtech has one for $9.99, next best solution would be to just buy a dock only from someone like Trubo they run $20 something(Private Message TURBO for price) , and then get a cheap mini to RCA cable.
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Lossless is better because it is just that, lossless. AAC 256kbps is compressed, where as lossless compresses it to the point where there is just all the needed data for untouched audio reproduction (from the standpoint of what was on the CD).
And the HD650 would not be ideal for portable ipod use and as you mentioned an amp, you would need one for sure .