A DAC is a digital-to-analog converter. All mp3 players, sound cards, cd players, etc have one. Not all, however, are high quality.
The ipod can only output through its headphone out or do line out from the dock, BUT before this the sound passes through the ipod's DAC. (Ignore the '3rd' option of Wadia iTransport---not applicable here)
The main problem here is that hot audio builds amplifiers, DACs with line out (no amplifier stage), and DACs with an amplifier stage.
The hotusb1 has an amplifier stage courtesy of the all-in-one PCM2705 chip that it uses.
(I have tried for 10 minutes finding a succinct way of explaining what to do, but it just gets complicated with the myriad ways you could use a lineout DAC, a DAC+amp, or an amp)
1. Headphones too soft, clipping? Get a plain amp.
2. Want better sound out your computer, and don't already have an amp you like to use? Get a DAC+amp. HOTUSB1, HOTAUDIO Mark4.
3. Want better sound out your computer, but have an amp you like? HOTAUDIO DAC Destroyer (this appears to have both unamp'd and amp'd outputs). It is also top of the line at HOTAUDIO.
I have realised what Paul was saying. Sorry if I jumped the gun. Hotaudio, you need some sort of hierarchy to organize the many models. Several options land on the same page!! (Heaven directs to MKIV).
Hope that helps. It took like 15 minutes