I have spoken with a Wadia dealer and can (hopefully) clear up some confusion...First, the whole point of this device is simply to extract a S/PDIF signal from the iPOD and output it via a standard coaxial connection to facilitate the use of external DACs. The theory is that the limiting factor in the iPOD's performance is its DAC and analog output section (which are actually pretty good IMO considering the portable nature of the iPOD) but that it has the capability to serve as a genuine "high-end" source if these limitations are removed/bypassed. I have it on good authority that iPODs are designed by Apple with the capability to output a S/PDIF with NO HARDWARE MODS needed; the catch is that Apple has encrypted/crippled this capability due to DRM concerns, and is very restrictive and selective regarding whom they will license to access this feature. Wadia has worked directly with Apple to "unlock" this capability (and pays licensing fees to Apple for this), and this product is the end result.
The MSB $2000 deal is NOT authorized by Apple. MSB simply "hacks" the iPOD to access the raw I2S stream, then uses circuitry in the dock unit for conversion to S/PDIF. The advantages of the Wadia include much lower cost, no need to crack open and mod your iPOD, and preservation of the iPOD's warranty (the MSB mod voids it).
The Wadia unit itself has no DAC circuitry (and therefore requires connection to an external DAC or HT processor/reciever)-the analog outputs simply pass the analog signal from the dock connector to the RCA jacks. This is no different than using any number of currently available docks/dock-to-RCA connectors; this feature was provided by Wadia simply for convenience and offers no sonic advantages other than good quality internal wiring and output jacks. Wadia did not include a built-in DAC because the intent is for the customer to use an external DAC of his/her choice. Also, $350 is PEANUTS compared with what every other Wadia component costs: incorporation of one of their no-compromise DAC circuits would no doubt increase the cost significantly (maybe even by a factor of 10-their next cheapest component to this dock is a $4500 CDP) but OTOH if they were to include a "budget" DAC section and keep total costs fairly low they risk damaging their reputation as an elite "high-end" manufacturer (what would you think if Porsche started building $12000 4-cylinder hatchbacks to compete with Kia-bad enough that they build a friggin' SUV!). As it stands now, this product is a BRILLIANT move in terms of gaining Wadia much wider exposure than they have had up to this point, which will no doubt lead to increased sales of their high-end gear (because fine audio is ADDICTIVE-let's call this dock the new audio "gateway drug").
A few people have mentioned the Krell KiD here. This is a very pretty piece of hardware but I'm 90% certain that it simply takes the analog signal from the dock connector and provides only analog outputs. Functionally it's no different from any of the numerous cheap, plastic docks readily available anywhere, but probably does provide better overall SQ given that the Krell uses much nicer parts than DLO/Kensington/etc.
Several have commented that for essentially the same money, a Mac Mini would be a better purchase based upon increased capability (it IS a "real" computer after all). To me that misses the point: this is an elegant, minimalist piece of equipment that only does one thing, but does it well and integrates better into an audio rig. Also, there are many head-fi/audio geek people (like myself) who DON'T WANT to deal with a computer as part of the audio system, and this product is a godsend for us. I use a computer all day long at work; when I get home, the last thing I want to do to RELAX is gaze into YET ANOTHER garish white screen (or worse, have my listening time cut short due to troubleshooting problems). Quite simply, music is my favored leisure activity, computer use reminds me of being at work (love my job but not relaxing), and I prefer to keep these "worlds" as separate as possible. I guess I view computers as appliances more than anything else: wonderful tools for getting things done, but not much intrinsic "fun".